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“Who to Sue?”

Owners Corporation PS505245E and Ors v Moresi Builders Pty Ltd (ACN 007 243 692) and Anor (Domestic Building) [2011] VCAT 1630 (23 August 2011)

It is not unusual, for example when defective roofs or balconies are in issue, for the builder to deny liability and allege that the party at fault is the contractor it engaged to perform the works.  In the recent interlocutory hearing of Owners Corporation PS505245E and Ors v Moresi Builders Pty Ltd (ACN 007 243 692) and Anor (Domestic Building) [2011] VCAT 1630 (23 August 2011) the Tribunal was asked to determine whether the Applicants were entitled to claim directly against the insurer of a plumbing contractor in liquidation (no pun intended).

The Applicants’ claim was in respect of the loss and damage resulting from the roof plumbing by the contractor.  The Applicants argued that the Tribunal had jurisdiction under s.59A(1) of the Domestic Building Contracts Act 1995 (‘the DBC Act’) to hear and determine the dispute between them and the insurer, and also that the Tribunal had jurisdiction to review the insurer’s decision to reject their insurance claim under s.60 of the DBC Act.

The insurer had two opposing arguments to the effect that plumbing work, as a single trade, was expressly excluded from the operation of the DBC Act.  Firstly, the insurer argued that the definition of domestic building work, contained in s5 of the DBC Act makes no express reference to plumbing work.  Secondly, it argued that this category of building work was expressly excluded by s6(a) of the DBC Act which refers to the Domestic Building Contracts Regulations 2007 where, amongst the exclusions, are ‘plumbing work as defined in section 221C of the Building Act 1993’.

Consequently, so the insurer argued, the plumbing works were not domestic building work; and accordingly, the insurance claim did not constitute either a dispute concerning an insurance claim concerning domestic building work or an insurer's decision on such a claim, so as to fall within the jurisdiction created by s.59A or s.60 of the DBC Act.

Senior Member Riegler paraphrased what the Applicants said would be the ‘absurd’ effect of accepting the insurer’s arguments:

“…that all of the trades identified under Regulation 6 would be excluded from the operation of the DBC Act unless the relevant contractor had performed more than one type of work.  Therefore, all electrical work, glazing, insulating, installation of floorcoverings, painting, plastering, plumbing, tiling and other works referred to under Regulation 6 would be excluded from the operation of the DBC Act, where the relevant contractor was confined to only that type of work.” [at para 13]

This being an interlocutory hearing Senior Member Riegler was careful not to give any indication as to whether the Applicants actually have a right to make a direct claim against the insurer.  The Senior Member therefore confined himself to determining the question of whether VCAT has jurisdiction on the assumption that the Applicants do indeed have a right to directly claim against the insurer, saying:

“…the proper construction of Regulation 6 is that it only applies to a situation where only one of the types of work referred to therein is being carried out.  It does not apply to the situation where several of those types of work are being carried on the one project, even if they all operate within their own individual contracts or subcontracts.”

Senior Member Riegler’s caution is understandable.  Any assumption that the Applicants do indeed have a right to directly claim against the insurer may be premature given the judgment of Justice Byrne in Gunston v Lawley & Ors [2008] VSC 97, a judgment that some have interpreted as determining that a sub-contractor to a builder does not owe a duty of care to a subsequent owner despite Justice Byrne’s observation that:

There is no general principle of law that a sub-contractor cannot owe a duty of care to a proprietor with which it has no direct contractual relationship.” [at paragraph 27]..

VCAT has in the past been prepared to see a contractor joined to proceedings against a builder and an insurer, as in Owners Corporation PS 414106B v Victorian Managed Insurance Authority & Ors (Domestic Building) [2009] VCAT 413, when breaches by the contractor were alleged to include failure to specify adequate waterproofing for a slab forming the car-park roof, failing to specify adequate drainage and failing to provide for slab level drainage resulting in water penetrating from a court-yard to a car park below.

Senior Member Riegler also determined that, even if the DBC Act did not provide jurisdiction to the Tribunal to hear the Applicants’ claim, VCAT’s jurisdiction under s107 of the Fair Trading Act 1999 to resolve a consumer and trader dispute covered the circumstances in which the Applicants were seeking to enforce rights bestowed upon them under the contract of insurance between the insurer and the plumber.  That jurisdiction, he decided, still held sway despite the repeal of s3 of the Fair Trading Act 1999 on 1 January 2011 upon the introduction of the Australian Competition and Consumer Act 2010 because the operation of the latter Act was not retrospective.

The ultimate determination of Owners Corporation PS505245E and Ors v Moresi Builders Pty Ltd has the potential to broaden the scope of recovery available to owners corporations and lot owners seeking rectification of defective works if VCAT does indeed accept that applicants have a right to make a direct claim against a contractor’s insurer.

Please remember that this article is only intended to provide an overview of the topic.  It is not comprehensive or intended as legal advice.  If you are concerned about some of the issues raised you should obtain specific professional advice.