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Building & Construction

Defences in QBCC recovery proceedings for payments made under the statutory insurance scheme

The statutory insurance scheme

Part 5 of the Queensland Building and Construction Commission Act 19911(the Act) establishes a statutory insurance scheme (also known as the Queensland Home Warranty Scheme) that provides cover for certain residential construction work valued at more than $3,300.00. The purpose of the scheme is to protect consumers from issues such as non-completion or defective construction by a builder.

Generally, under the scheme the Queensland Building and Construction Commission (the QBCC or the Authority) will make an initial assessment of the works if a person makes a claim under the Scheme. If the Authority determines that the residential building work is defective, it may direct the person who carried out the work to rectify the building work within a specified period.2

If a person fails to comply with the notice to remedy then the Authority may issue a scope of work detailing the matters to be rectified. If the scope of work is not complied with, the QBCC may approve a tender for scope of works for which the owner engages a builder to rectify the damage.3 Upon rectification, the Authority may make a payment under the Scheme.

Builder’s liability if there’s a payment under the statutory scheme

If the QBCC makes a payment under the statutory scheme, it is entitled to seek recovery of the amount paid from the building contractor whose fault the claim arose.4 The QBCC is subrogated, to the extent of any payment made, the rights of a person whom the payment has been made.

Defences in statutory schemes

The Act provides for a limited number of defences which can be raised in contesting liability to repay an amount to the QBCC paid out under the scheme. Section 71(4) to (6) of the Act provides that these defences include a claim that the licensed contractor’s licence details were put on the statutory insurance scheme paper work (completed at the beginning of the contract with the residential homeowner) were included without their authority.

Challenging payment made under the scheme on the basis of flaws with the notice of direction

The Courts have considered on a number of occasions whether or not a person may raise a defence to liability to repay monies paid by the QBCC monies because of an alleged flaws with the recovery process under the scheme. Issues raised by litigants to justify non-payment (at this stage) of amounts under the scheme have included:

1. The inspector that undertook the inspection of the alleged defects was not competent to carry out the inspection because they lacked the appropriate licence to carry out inspections and reports;

2. The person who the QBCC is claiming payment of monies under the scheme is not at “fault” as required under s71(1) of the Act; and

3. The defendant is not liable to repay the amounts paid under the scheme because the payments were made in relation to a contract for more than two residents.

The Courts have adopted the position that due to the statutory framework of the scheme, and the provisions under the Act which allow for judicial review of decision by the QBCC, a defendant may be limited from raising certain defences.

In Lange v Queensland Building Services Authority5, Wilson J said “sections 71 and 111C provide for recovery of the amount of a “payment on a claim under the insurance scheme” rather than the recovery of the amount of a “payment under the insurance scheme”. Also in Lange, McMurdo P also noted that “it seems unlikely that parliament would have intended for QBSA to recover from building contractors (or where building contractors are companies, their directors) payments wrongly made to those insured by the QBSA on policies entered into under Pt 5 of the Act.”

Lange was further considered in Mahony v Queensland Building Services Authority.6 In Mahony, the appellant wished to, among other things, raise (in relation to resisting a summary judgment application) an allegation that the QBCC officer who had conducted the initial inspection (as pre-cursor to payment out of the statutory scheme) was not appropriately licenced to carry out an inspection. Gotterson JA held that while “the statutory right to recover is not conditioned upon the legal quality of a determination by the authority to make the indemnity payment or of any anterior step taken by the authority that had led to the decision to pay. That is not to say that a decision to make an indemnity payment or any anterior step is not reviewable.”7 The Act conferred the Commercial and Consumer Tribunal, the precursor to the Queensland Civil and Administrative Tribunal (QCAT), jurisdiction with respect to decisions by the QBCC including “to direct or not direct rectification or completion work on a building; that work undertaken at the direction of the authority was not of a satisfactory standard; about the scope of works to be undertaken under the statutory insurance scheme in order to rectify; and to disallow a claim under the scheme wholly or in part”. Importantly, his Honour held that “the availability of review of those kinds and at those stages provides a sound rationale for a legislative intention that the types of decisions to which I have referred, not be justiciable in s 71(1) debt recovery proceedings.”8

Justice Gotterson also considered the case of Queensland Building Services Authority v Orenshaw & Anor9 and agreed with the decision of Henry J that:

“at the other extreme, it is unlikely that s 71 could be avoided by a building contractor disputing discretionary factual conclusions occurring as part of the professional judgment exercised by the QBSA [as the QBCC was then known] in deciding whether and how much to pay in respect of a claim. It would not be enough to avoid the statutory liability imposed by s 71 for a defendant to point merely to any error of fact connected with the claim process. It must logically have been a factual error of such a nature that the claim was not, on the facts as correctly known, a claim under the insurance scheme or that the payment sought to be recovered was not a payment on such a claim”10

In Orenshaw Judge Reid referenced a decision of Judge McGill in Manwin v Queensland Building Services Authority.11 Manwin concerned a case where the QBCC paid an amount which, according to the defendant, included an amount to rectify work he did not contract to carry out and did not carry out. In Manwin, the defendant did not apply to the Tribunal to review the QBCC’s decision within the timeframe under the Act. Due to his failure to apply within the time period, the Judge McGill held that the defendant was “ultimately required to pay more than would have been the case if he had applied for a review of the decision as to the scope of works in a timely way.”

As can be seen by the cases above, the Courts have taken a very strict approach in determining whether or not a defence is available in resisting claims by the QBCC for repayment of monies under the scheme.

Director’s liability to pay under the scheme

The power of the QBCC to seek repayment of an amount paid under the statutory scheme extends to include directors of building companies. Section 111C(3) of the Act provides that “if a company owes the Commission an amount because of a payment made by the commission on a claim under the insurance scheme” then “the liability to pay the amount attaches to…each individual who was a director of the company when the payment was made” by the QBCC.12

What this means is that a director of a company may be liable to repay to QBCC the amount paid out by the QBCC under the statutory insurance scheme.

This was confirmed by the Queensland Court of Appeal in a number of recent decisions including Namour v Queensland Building Services Authority13 and Queensland Building and Construction Commission v Ward & Anor.14

In Ward the defendant argued that he was not liable to he was not liable under section 111C until after the QBCC had sued the company which had completed the works and an amount was determined by the Court.

In Namour, the defendant argued that the order for summary judgment against him was wrong because if he was able to obtain, by way of disclosure and possibly third party disclosure, he would be able to prove at trial that the claimant’s claim under the insurance scheme resulted from the wrongful notice cancellation of the company’s building licence.

In both cases, the Court relied on its earlier decision in Mahony and confirmed that:

1. A builder or director who wishes to challenge rectification notice or decisions from the QBCC should make the challenge before the QBCC pays under the statutory insurance scheme – often this will be by way of judicial review to QCAT; and

2. Once the QBCC pays from the scheme a debt has been created, the building contractor and, a director may be unable to challenge the QBCC’s previous decision in a proceeding for recovery of a debt.

The results in both cases was that the Court dismissed the defences if the directors and found them liable to pay for the amounts paid out by the QBCC under the statutory insurance scheme (notwithstanding their objections that the QBCC’s process leading up to the payment of the scheme was flawed). The failure to review the QBCC’s decisions at an earlier stage had the effect of rendering those issues non-justiciable before the Courts in recovery proceedings.

Lessons for directors of building companies

If a building company or builder receives a notice to rectify or direction from the QBCC (including a decision to pay from the statutory insurance scheme) and identifies reasons why that direction, notice is wrong, it is important to seek independent legal advice as to whether or not it can challenge that notice within the timeframe provided under the QBCC Act or the Judicial Review Act 1991.

Failure to challenge the payment at the earliest stage could result in a person being unable to raise it as an issue in future enforcement proceedings brought by the QBCC for payments of the debt. If you are a builder or director of a company and have received a direction to rectify or direction to pay, you should immediately contact our lawyers if you are unsure or wish to challenge the QBCC’s direction.

1 Formerly, the Queensland Building Services Authority Act 1991.
2 Section 72 of the Act.
3 Section 71AC of the Act.
4 Section 71 of the Act.
5 [2010] QCA 58
6 [2013] QCA 323
7 Ibid at [34] and [35]
8 Ibid at [35].
9 [2012] QSC 241
10 Ibid at [38]
11 [2007] QDC 298
12 Section 111C(6) of the Act.
13 [2014] QCA 72.
14 [2014] QSC 138.

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