Rectification Orders Part 3: A game-changer or more of the same?

As previously discussed, in July 2014, Victoria implemented new amendments to the Building Act 1993 that were aimed at increasing consumer protection in the domestic building space. Among the notable amendments was the introduction of ‘Rectification Orders’, where the Victorian Building Authority (“VBA”) holds the power to appoint building inspectors to attend domestic building sites and issue rectification orders on builders if the situation warrants this.

A rectification order may include not only terms as to the rectification and completion of works but also to compel the owner to pay money to the builder at a certain time (perhaps on completion of the work) or perhaps to pay monies into a trust account pending completion.

There is no doubt that this concept has been developed to give better protection to consumers and to provide fairer, quicker and cheaper resolution of disputes.

This is so because a failure to comply with a rectification order on the part of the builder, enables the owner to end the domestic building contract for the work and make an application to VCAT for an order against the builder. VCAT will then consider the breach of rectification order and make orders that it considers fair in the circumstances.

The obvious benefit of this process is that it alleviates the need for VCAT to direct parties to a mediation or compulsory conference, as the matter proceeds to final hearing right away thereby reducing legal costs and expense, and the stresses of prolonged litigation.

However, as was discussed in Rectification Orders: A game-changer or more of the same? Part 2, builders have the right to appeal the rectification orders made by the VBA to VCAT within a set time limit. Presumably this then means that there will be a number of builders taking up this opportunity to avoid VCAT orders being made against them for failure to comply with rectification orders.

This begs the question: will this actually deliver the goods on improved consumer protection in domestic building, or will it deliver a bounty for lawyers and an over-crowded VCAT?

From our view, consider it likely there will be many rectification orders made once a sufficient number of inspectors are engaged, and the prospects of appeal are likely to be high. Depending on the volume of rectifications orders, this may well lead to an over-crowded VCAT and high demand for construction lawyers to assist in the litigation of building disputes.

On another note, we are curious to know how ‘strong’ rectification orders will be in practice to compel a builder to complete the works. Specifically, we would like to know what the consequences will be for a builder who has failed to comply with a rectification order, apart from the obvious VCAT order being made against the builder.

Rectification orders issued in the ACT and Queensland (known as directions to rectify) have penalties attached for non-compliance. In the ACT, if a person intentionally does not comply with a rectification order, the penalty is up to $22,000 for an individual and $110,000 for a corporation. Similarly in Queensland, a licensee who fails to rectify building work as required, is subject to a penalty of up to $27,500.

The draft Building Act Amendment Bill indicates that rectification orders in Victoria will be similar to those issued under the Home Building Act (NSW). In contrast to the ACT and Queensland, as we have seen in NSW, rectification orders issued under the Home Building Act give rise to very limited rights and obligations. This is so because the system is largely reliant upon the Office of Fair Trading, with respect to enforcing a rectification order and non-compliance by the Builder. This will be the case with VCAT in Victoria.

Thus, rectifications orders in Victoria (as they are in NSW) may not be as effective as they are shaped up to be, and they may indeed be a little like a “toothless tiger” against the builder.

Fortunately though, the consumer will be protected in the event that a VCAT order is handed down affirming the rectification order, or the rectification order is not appealed by the builder. A further key change to the legislation will enable the VBA, in such circumstances, to certify that a rectification order has not been complied with and permit the owner to make a claim under the builder’s warranty insurance for the rectification of the defects.

Another question mark over rectification orders in Victoria concerns the appointed building inspector’s capacity to also make orders to “otherwise determine matters in contention’.

Whilst we can confine the scope of rectification orders to building works and not contract dispute over time, in many cases disputes over so called defects are hard to distinguish from disputes over contractual issues. For example, a failure to carry out works in accordance with the plans may be seen by the owner as a defect, but the builder may equally argue that the departure was a variation as agreed to by the owner.

Therefore, the line between defective building work and contract issues can sometimes become blurred and there is no doubt that this will give rise to many rectification orders being appealed on this basis.

Although it is difficult to look into a crystal ball and predict how rectification orders will work in practice, all we can say is that the prospects of appeal are likely to be high. For many in the domestic building space including builders and owners, rectification orders may well be a fast track to VCAT.

For more advice and assistance in regard to building regulatory matters or dispute advocacy, you should seek out legal advice from construction lawyers with expertise in domestic building.