Articles

By Justin Cotton, Director, and Jordan Davies, Senior Paralegal, Lovegrove & Cotton – Construction and Planning Lawyers

In essentially all Australian jurisdictions, statutory regulators as they vary from state to state or territory to territory have some form of power to compel builders or owners to carry out certain building works. In many jurisdictions, councils have the power to issue building orders or emergency orders, and sometimes even private building surveyors have this power. In the Australian Capital Territory, the Territory government, specifically the Construction Occupations Registrar also known as ‘Access Canberra’, pursuant to Part 4 of the Construction Occupations (Licensing) Act 2004 (ACT) (‘the COLA’), has the power to issue, amongst other orders and undertakings, instruments that are known as ‘rectification orders’.

 

What is a rectification order?

A rectification order is an order issued by Access Canberra against an ‘entity’ (i.e. including a body corporate or natural person) where there has been a contravention by that entity of the COLA or other operative legislation in respect of a ‘construction service’ to which the notice relates.[1] In assessing whether it is appropriate for a rectification order to be made, Access Canberra must have regard to the potential for injury, and loss and damage (whether physical or purely economic) that has been or may be caused by the contravention. Notice will be given to a builder or other construction practitioner prior to a rectification order being issued, inviting submissions from the ordered entity, unless there is need for an emergency rectification order. Notice will also be given to the land owner.

Action by Access Canberra is, like civil building action in the ACT, limited by operation of the 10 year statutory limitation period (generally applied from the date of the certificate of occupancy [although not always]).

Where a rectification order is not complied with, Access Canberra may arrange for an alternative construction practitioner to carry out the work. The ‘ordered entity’ (for our purposes, the builder) will be liable for the reasonable costs involved with this (i.e. the costs of the alternative construction practitioner). A decision to issue a rectification order is reviewable at the ACT Civil and Administrative Tribunal, and a decision to arrange for an alternative construction practitioner to carry out rectification work may not be made until the review period has elapsed.[2]

 

Against whom may a rectification order be made?

Accordingly, builders in the ACT may have rectification orders issued against them when there is severe noncompliance with building standards leading to defective building works, particularly where those defects present as a risk to occupant safety.

Unlike, for example, building orders issued in the State of Victoria, rectification orders in the ACT are issued against ‘the entity [that] provided the construction service, or part of the construction service, to which the notice relates,’[3] so it is hard to see how they would ever be issued against an owner for defective building works (which is not the case in Victoria), despite express provision for notice to be provided to the land owner.[4]

‘Construction service’ comprises the carrying out of work by a broad ambit of actors including demolition contractors, building surveyors and assessors, drainers, electricians, plumbers, and gasfitters, amongst others.[5] This means any of these actors could be subject to a rectification order. Whilst this paper focuses primarily on builders, the issues discussed in this article apply to any of these construction occupations.

Many of these construction practitioners will operate under the guise of a corporation or partnership and may have registration attached to the corporation or partnership. However, the COLA requires these corporations to have a ‘nominee’[6] who is responsible for supervising the construction services. An issue that arises out of obligations being imposed upon corporations is what happens if the corporation is “wound up” in insolvency.

 

Corporate bodies and insolvency in building matters

Corporate insolvency has plagued the building industry in numerous jurisdictions, particularly where certain liabilities are not indemnified. Many jurisdictions impose mandatory requirements for domestic builders to have an insurance policy that covers a minimum amount for each project where there is a judgment awarded in favour of an owner against an insolvent or disappeared builder, but this applies only for certain categories of building and buildings of certain heights. So, in the ACT, where a building exceeds 3 storeys, owners or owners corporations will not be able to claim on these domestic insurance schemes.

In the time leading up to any judgment, the builder against whom an owner is making a claim may still be trading. This is where it can be very beneficial for the regulator to intervene and issue a rectification order.

Where the question of solvency is a live issue, the COLA provides Access Canberra with a helpful tool in respect of a rectification order that may not be available to a party owed a judgment debt, who, at liquidation of the insolvent builder company, will rank pari passu (‘equal’) with the general body of creditors, unless there is some security over the amount.

 

Hide behind the ‘corporate veil’ to no avail

This ‘tool’ as I have referred to it as, is the ability for the regulator to ‘pierce’ the corporate veil of the body corporate builder (or other construction practitioner) and go directly after the directors of that corporation.

Note that this is distinct from what was discussed earlier as the ‘nominee’ for purposes of corporate registration; here, the regulator can go after any natural person director, particularly those with assets sufficient to meet reasonable costs incurred by Access Canberra when arranging for an alternative construction practitioner to carry out the work required under the rectification order.[7]

There are a number of instances where Access Canberra has the opportunity to pursue the directors of a corporation or individual partners of a partnership.

The first is a general discretion for Access Canberra to issue the s 38 Rectification Order against the body corporate and the directors, or the partnership and the partners and/or directors of a corporation that is one of the partners.[8]

Secondly, Access Canberra may pursue the directors of a corporation where the corporation that provided the construction service is wound up before the rectification order is made.[9] The directors against whom Access Canberra may take action are those that were directors as at the time of the construction service being provided.

The third instance largely mirrors the second, albeit in circumstances where the corporation is wound up after the rectification order is made by Access Canberra. This provision applies automatically, and the order ‘is taken’ to apply to each director who was a director at the time the construction service was provided.

Conclusion

The takeout from these provisions is quite clear: insolvency and the corporate veil will not protect directors of corporations who are construction practitioners providing construction services and there has been a contravention of the legislation such that Access Canberra has seen fit to issue a rectification order. Directors of corporate construction practitioners are very much in the firing line if their firm winds up in insolvency.

It follows that builders and other construction practitioners should be mindful of this when carrying out construction services in the Australian Capital Territory. If a builder or other construction practitioner wishes to challenge a rectification order, it should seek legal advice, and consider a review at the ACAT. It also follows that owners who suffer from defective building work should consider engaging with ACT government authorities, particularly where defects are so substantial that they pose a threat to safety, as the rectification order path mollifies concerns regarding insolvency, and can procure outcomes for owners without necessitating civil proceedings.

 

Footnotes

[1] See Construction Occupations (Licensing) Act 2004 (ACT), s 35.

[2] See ibid, s 41(4).

[3] Ibid, s35(1)(b).

[4] See Ibid, s34(2).

[5] See Ibid, ss 6(2) & 6(7).

[6] Ibid, s 28.

[7] See s 41(5).

[8] See s 35(3).

[9] See s 39A.