Building Warranties and the Perils Of ‘License Lending’: Does This Make a Registered Domestic Builder the Contracted Builder?

Building Warranties and the Perils Of ‘License Lending’: Does This Make a Registered Domestic Builder the Contracted Builder?

19 Apr 2022

By Justin Cotton, Director, Lovegrove & Cotton – Construction and Planning Lawyers

Sadly it is not an unfamiliar occurrence to find a registered domestic builder in the situation where their builder registration details have been used on a building contract where they have never actually been to the site.

It is a little like allowing one’s head to be placed in a noose, notwithstanding the remuneration for the use of one’s builder occupational licence on a job. The problem is that, firstly, you are enabling someone else to circumvent the consumer orientated requirements of the building law, and, secondly, the registered builder has no control over the quality of the build.

Our firm recalls a matter we had carriage of where the two partners of a building business had split the projects between them based on the geographic location of each site. The problem later arose that only one of the partners was a registered builder, and that registered builder soon discovered that there were a number of problem projects with defects that he knew nothing about, but where his details had been entered as the ‘registered builder’ on the building contract.

Builder registration name and number are not only relevant to the building contract, they are also used to obtain the domestic builder (or warranty) insurance on the contract and for the details on the building permit. If the registered builder individual on the contract, the building permit and the insurance policy is not actually the builder carrying out the works, this can amount to misrepresentation to the relevant building surveyor and the insurer, regardless of whether or not the owner knows about or consents to the situation.

Is it really a good idea to create a situation where you, as the registered builder, can become the port of call for building defect claims after the event, or possibly even a practitioner misconduct complaint, in circumstances where you were not actually responsible for the performance of the works? Quite obviously the answer is a resounding “No”. And yet this kind of thing has been happening all too frequently in Victoria.

It is not always the case that the registered builder has knowingly assisted in this process, because it may be that the registration number and name was used without their knowledge. A builder registration is a valuable commodity and it should be jealously protected, because they are not given away with large dollops of largesse by the registration authorities.

Despite the obvious pitfalls of ‘license lending’, relevant VCAT case law does not find that a registered builder in this scenario who did not carry out the works is automatically the contracted Builder. They will not necessarily be seen as responsible for the “section 8 warranties” implied into the building contract.

In the case of Hill v Bastecky [2006] VCAT 2663, a registered builder had assisted an unregistered company that wanted to perform building works but did not have a registered builder director. Mr Bastecky allowed his registration name and details to be entered into the building contract with the owners Mr and Mrs Hill, even though the building company WPI was stated to be ‘the builder’ in the contract and was to be carrying out the building works.

Mr Bastecky’s involvement in the scheme was ostensibly to find potential customers, for which he was remunerated with a “finder’s fee”. The reality, in fact, was the opposite. WPI found customers and Mr Bastecky signed the first four pages of standard form major domestic building contracts and could have up to four projects going at a time up to his limit of $500,000.00 as required by his domestic builder insurance provider. This meant that WPI was to have the benefit of having the DBI requirement and requirement for registration signed off prior to the issue of a building permit by the RBS, as is required under the Domestic Building Contracts Act 1995 (VIC) and Building Act 1993 (VIC).

Mr Bastecky signed a building contract that was provided by WPI to the Hills, but Mr Bastecky alleged he did not have knowledge of this signed contract being handed to the Hills. The Hills also denied signing the contract. Mr Bastecky also organised with his insurer to provide a certificate of insurance in relation to the relevant building works which was provided on the same day as the signed contract.

Each domestic building contract needs to state the name and number of the registered builder, who will usually be a director of the building company. Registered builders can either be natural persons or corporations. Hill v Bastecky was decided before the changes that came into effect in 2018 and which allowed for corporate practitioner registration.

When WPI later became insolvent, and after the insurance company refused coverage to the Owners because they had been misled as to the true situation, Mr Bastecky was held to be liable in damages to the Owners.

Notwithstanding it had been pleaded that WPI entered into the contract as Mr Bastecky’s agent, the liability did not arise because Mr Bastecky was considered the contracted builder. The Tribunal found that he was not liable in contract to the Hills because it did not consider that WPI had Mr Bastecky’s authority to enter into the contract on his behalf – the evidence did not support such a conclusion. WPI was said to be the contracted builder that would have been liable under the section 8 warranties for defects, had the insolvency not occurred. The Hills also claimed that Mr Bastecky was estopped for denying he was the builder as he had represented that he was the builder under the building contract. This argument was also rejected as it was considered that the Hills had in no way relied upon Mr Bastecky, but rather the representations of WPI.

Nonetheless, the Tribunal found that the warranty insurer was misled by Mr Bastecky’s actions in completing the first four pages of the contract schedule. There was also a suggestion (though disputed by Bastecky) that he had been introduced to the Owners as ‘your builder’. The Tribunal decided that Mr Bastecky was guilty of misleading and deceptive conduct under what was then known as the Trade Practices Act 1974 [‘TPA’] (a very similar prohibition is now contained in Section 18 of the Australian Consumer Law [‘ACL’]) when he assisted WPI to obtain insurance and enter into the contract. The Tribunal said that the deal between WPI and the Owners would not have proceeded but for the representation by Bastecky as the Building Permit would not have been issued.

The issue of quantum was not resolved in the VCAT case, and this remains a vexed issue, as the measure of damages under the then-TPA and present ACL is not an expectation loss or performance interest as it is under implied contractual warranties, nor is it directly analogous to the restoration measure in negligence claims. Claimants will have to very carefully consider the risks associated with the hurdles outlined in the case of Marks v GIO Consulting in relation to damages under the ACL. This will particularly be the case where multiple actors have been involved in, and various events have transpired along, the chain of causation for a wrong under the ACL. An action should not be brought under the ACL if all it will result in is nominal damages, unless a party is merely interested in vindication.

Irrespective of the issue relating to causation and quantum, this case should be a salutary reminder to individual builders to be on guard about the misuse of their registration details and in short, they should never allow their details to be used in this way.

 

Disclaimer

This article is not legal advice and discusses its topic in only general terms. Should you be in need of legal advice, please contact Lovegrove and Cotton Lawyers and our experienced lawyers will assist you based on the facts and circumstances of your case.

This article was updated by  Jordan DaviesLaw Graduate on 19 April 2022.

 

Lovegrove & Cotton: Leaders in building practitioner legal representation

Lovegrove & Cotton are experts in construction law and building practitioner legal representation in Melbourne, Sydney, the ACT and Queensland. Kim Lovegrove RML, FAIB is co-author of leading text, “Disciplinary Hearings and Advocacy”. Justin Cotton has represented building practitioners and building surveyors successfully for nearly fifteen years and has established leading precedence in a number of Australian tribunals. If the reader knows of anybody who needs legal representation in this complex and gravity-laden area, feel free to contact us via our website or by emailing enquiries@lclawyers.com.au.