Avoiding payments under the QBCC’s statutory insurance scheme when payments made in error

If a builder (or director of a builder) is able to establish that a payment made by the Queensland Building Construction Commission (QBCC) under the statutory insurance scheme was paid out in error, they may avoid liability to the QBCC to have those amounts recovered against them. Examples may be a payment which is in excess of payable under the statutory insurance scheme.

In Samimi v Queensland Building and Construction Commission [2015] QCA 106, the Court of Appeal held that notwithstanding the QBCC’s ability to seek recovery of a payment made on a claim under the statutory insurance scheme pursuant to section 71(1) of the Queensland Building and Construction Commission Act 1991 (the Act), the wording of the Act still required that the QBCC make a valid payment in accordance with the terms of the policy.

Facts before the Court

The appellant, Samimi, was the director of a builder that was engaged on 20 November 2006 to carry out construction work on two residential buildings at St Lucia. Practical completion of the project under the contract was 13 April 2008, however during the course of the work relations between the builder and owner of the buildings deteriorated.

On 10 August 2007, the owners of the building delivered a notice terminating the contract (a corresponding notice to terminate and termination was also issued by the Builder) and made a claim to the QBCC under the statutory insurance scheme.

After the preparation of inspection reports on the two properties (which identified a number of defective works), the QBCC issued notices dated 13 December 2007 to the builder to rectify. By letter dated 15 February 2015, the QBCC advised the builder that the defective work had not been satisfactorily rectified by the builder, and on 22 February 2008 admitted the claim by the owner against the builder.

The owner obtained a Quantity Surveyor’s report which stated the cost to complete the project to be $1,120,000.00 on the basis that the total construction cost for each property was $750,000.00, and that the market value of the builder’s work on each building was $190,000.00.

On 5 September 2011, in proceedings in the Queensland Civil and Administrative Tribunal between the QBCC and owner of the buildings, the Tribunal held that maximum amount payable in respect of the project under the statutory insurance scheme was a total of $400,000.00 for both residences.

On 10 November 2011, the QBCC paid $400,000.00 to the owner and commenced proceedings against Samimi pursuant to sections 71 and 111C of the Act for recovery of the $400,000.00. Under section 111C of the Act, a director of a corporate builder is liable for any amounts paid out by the QBCC under section 71 in respect of the statutory insurance scheme.

When the QBCC applied for summary judgment against Samimi, the appellant resisted on the basis that:

1.     the QBCC had assessed the owner’s remaining liability in each instance as exceeding the amounts properly payable under the policy, such that any payment made by the QBCC was not made “on a claim under the insurance scheme

2.     the QBCC had previously advised in writing that the owner had paid $200,000.00 under the contract which was less than the $700,000.00 the QBCC claimed at the time of the application; and

3.     if the QBCC’s previous determination that the owner had paid $200,000.00 under the contract was correct, the owner’s remaining liability under the contract would have been $1,165,260.00, which was more than the cost to complete the contract. On that scenario, the amount payable under the Scheme would have been nil.

The primary judge allowed summary judgment and concluded it was sufficient for recovery pursuant to s 71(1) of the Act for the QBCC to establish it had made a payment on a claim under the Insurance Scheme. Recovery was not conditional on the correctness of the determination by the respondent to make that payment, or the correctness of any anterior step taken by the respondent leading to the decision to make that payment.

The primary judge also observed that he was satisfied the plaintiff’s calculations were correct, but held that even if there had been an error, that error occurred in the administration of the statutory insurance scheme and was not a factual error of such a nature that the claim was not made under the scheme.

Decision by the Court of Appeal

Justice Boddice (with whom President McMurdo and Morrison JA agreed), allowed Samimi’s appeal and decided that:

1.     the factual inconsistency regarding the payments made by the owner under the contract were of great significance to Samimi’s allegation that the payment made by the QBCC was outside the limit of the policy;

2.     if the owners had only paid to the builder $220,000.00, the amount payable on the claim under the insurance scheme was nil (as the $400,000.00 payment under the claim plus $220,000.00 was less than the alleged remaining liability of the owner to the builder under the contract). If that fact is established at trial, there is clearly raised an issue whether the money paid by the respondent was a payment “on a claim under the insurance scheme” as it was a payment in excess of the liability under the policy;

3.     section 71(1) of the Act has been interpreted as providing the respondent with a right of recovery, as a debt, of payments made by it on a claim under the insurance scheme which is not dependent upon the respondent establishing the legal correctness of a determination made by it to make that payment or any anterior step taken by it that has led to the decision to pay. It is also not enough to avoid liability for a builder to point to a mere error of fact connected with the claim process; and

4.     it does not follow that no factual error can be the subject of a proper defence to a claim for recovery made pursuant to s 71(1) of the Act. The inclusion of the words “on a claim under the insurance scheme”, in s 71(1) of the Act, indicate a legislative intention to require the right of recovery to pertain to payments made “on” claims under the insurance scheme. The use of those words connotes a requirement the payment made be within the policy. If that were not so, the legislature could simply have provided that the respondent could recover under s 71(1) of the Act any payment it had made pursuant to the insurance scheme.

Samimi had relied on a factual dispute raised in the QBCC material which was relevant to the QBCC’s entitlement to succeed in the claim. The factual dispute was not sufficiently explained such as to allow the primary judge to conclude there was no need for a trial. A trial may well have resulted in a finding the respondent was not entitled to recover the amount claimed in the proceeding. That was a valid defence to the respondent’s claim for recovery under s 71(1) of the Act.

Lessons from Samimi

Builders should ensure that they act promptly if they are served with Notices to Rectify from the QBCC.

Builders should also carefully review how much money has been paid to them to determine whether or not the amount payable under a claim on the insurance exceeds the remaining liability owed to them. If so, they may be able to claim that an amount payable under the Scheme is nil and bring it to the QBCC’s attention for rectification.