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Unlicensed, Uninsured Builders’ Right to Payment Affirmed by Supreme Court Decision

In a recent judgment that serves as a harsh reminder for consumers and developers, the Supreme Court has made a significant ruling in the case of Sunshine East Pty Ltd vs CBEM Holdings Pty Ltd

This ruling highlights the importance of undergoing thorough due diligence when engaging contractors, as well as understanding the contractor’s rights and obligations under the set-out building contract. It also shows the importance of understanding the Security of Payment Act, and the potential legal loopholes that must be considered before undergoing new contracts with building contractors.

The Supreme Court’s Surprising And Worrying Conclusion

In a surprising and somewhat alarming decision, the Supreme Court determined that a builder who is not licensed and has not obtained mandatory insurance under the Home Building Act 1989 is still entitled to payment under the Building and Construction Industry Security of Payment Act 1999

The Home Building Act outlines that a building contract is unenforceable if the builder is unlicensed and that an unlicensed builder is not entitled to damages or able to enforce any other remedy in respect of the breach of the contract provisions. Regardless, the Court determined that these provisions do not prevent a party from being entitled to payment under the Security of Payment Act

Although this judgement is consistent with the objective of the Security of Payment Act as an interim payment scheme for contractors, it’s unlikely that those who drafted the Act had intended it to be used by contractors breaching the law to obtain payment. 

The Case Background

The case of Sunshine East Pty Ltd vs CBEM Holdings Pty Ltd, involved a residential property owner (the plaintiff) and a building contractor (the defendant). The plaintiff had engaged the defendant for building work on their property. The defendant was not licensed to do building work and had not obtained the necessary Home Building Compensation Fund insurance as required by the act.

The defendant issued a payment claim for $420,952.39 under the Security of Payment Act, to which the plaintiff homeowner failed to respond with a payment schedule or to pay the claimed amount. Failing to receive payment or a payment schedule, the defendant then had an entitlement to seek summary judgment in the District Court for the claimed amount under the Security of Payment Act, which is exactly what they did. The District Court ruled in favour of the defendant.

The plaintiff appealed the District Court judgment in the Supreme Court on the grounds that the work was performed by an unlicensed builder, and that the work was not insured. Despite these facts, the appeal was unsuccessful. The Court ruled that claims under the Security of Payment Act are not for damages or to remedy a breach of contract, but a statutory remedy outside the reach of the Home Building Act. 

Implications for Consumers and Developers

This decision underscores the significant risks faced by consumers and developers who may not be fully aware of the requirements of the Security of Payment Act. It emphasises the need for comprehensive understanding and due diligence in contractual engagements in the building industry.

 

Need guidance on contractual agreements to ensure you’re covered? Contact us today to speak to one of our Solicitors.

 

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