In Sunshine East Pty Ltd v CBEM Holdings Pty Ltd [2023] NSWSC 744, the Supreme Court of NSW held that a progress claim for residential work under contract, which has been completed to an acceptable standard, is payable even if a contractor is unlicensed and uninsured under the Home Building Act 1989 (NSW) (HB Act).

Background

The owner (plaintiff) engaged a construction manager to manage the design and construction of various buildings, including two dwellings (works) under a Head Contract Construction Management agreement (Construction Management Contract) which was "for use in non-residential building projects". Notwithstanding the choice of contract, "residential building work" is defined in Schedule 2 of the HB Act as work involved in coordinating the construction of a dwelling.

As the construction manager was contracted to oversee the works, rather than to carry out any building work, it obtained a policy of insurance under the HBCF for a contract sum representing its construction management fee only. This did not include the cost of the works.

The defendant provided a quote for civil and stormwater works, from which a trade contract was formed between the plaintiff, the construction manager and the defendant (trade contract). The trade contract was exclusive of a policy of insurance under the HBCF, which was to be taken out and paid for by the plaintiff or the construction manager. This was consistent with the terms of the Construction Management Contract.

Accordingly, the defendant's work was not insured and the defendant entered the trade contract without holding a licence, in contravention of section 4 of the HB Act.

The defendant served a payment claim under the trade contract in the amount of $420,952.39. The plaintiff failed to pay any part of the claim or provide a payment schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

Summary judgment

The defendant commenced proceedings in the District Court and applied for summary judgment. The Court was satisfied that there was no triable defence to the claim, by force of section 15 of the SOP Act and entered a summary judgment for $420,952.39.

The plaintiff sought leave to appeal in order to challenge the validity of the payment claim on two grounds:

  • insurance: The defendant performed the work without having in force a contract of insurance as required by section 92 of the HB Act, thus was prohibited from demanding or receiving payment by the operation of section 94 of the HB Act
  • licence: The defendant performed the work without a contractor licence as required by section 4 of the HB Act, rendering the trade contract unenforceable such that no remedy was available under section 10 of the HB Act.

Decision on appeal

Insurance

The plaintiff and the construction manager clearly assumed responsibility for securing insurance and the defendant would reasonably have assumed this. In addition, if the plaintiff and the construction manager had taken steps to obtain insurance cover for the defendant, they would have found that the defendant was unlicensed.

The Court considered that the plaintiff was acting disingenuously in seeking to resist an obligation to pay the defendant for works carried out and that there was a very strong case for allowing a quantum merit on grounds of justice and equity. Further, there was no evidence to suggest that the defendant's work was poorly executed and there was no reason to believe that any part of the summary judgment amount would be repayable to the plaintiff in civil proceedings under the trade contract, having regard to section 32 of the SOP Act.

Licence

The Court could not distinguish Brodyn Pty Ltd v Davenport [2004] NSWCA 394 and found that section 15 of the SOP Act applied, such that a statutory claim could be made for the progress claim, despite the consequences set out in section 10 of the HB Act.

Practical significance

The decision makes it clear that the SOP Act is a powerful tool, not only for enforcing payments in ordinary circumstances, but also to sidestep conduct which would be considered disentitling to payments under the HB Act.

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