Domestic Building Disputes – VCAT & Alternatives
Domestic Building Contracts
From 1 August 2017, a builder must not enter into a contract for more than $10,000 unless it is in writing and complies with the requirements of Part 2 and section 31 of the Domestic Building Contracts Act 1995 (Vic) (“the DBC Act”).
For contracts entered into prior to 1 August 2017, the threshold amount is only $5,000.
Failure to comply with the DBC Act in this regard can result in penalties for the builder, but it does not mean that the owner will necessarily avoid paying a fair and reasonable price for work already carried out under the non-compliant contract.
Breach Notices and Notices of Termination
Standard domestic building contracts generally provide rights to the parties in the event that the other party breaches the contract.
For most breaches, the breaching party must be given a notice of breach providing notice of the alleged breach and timeframe within which to remedy the breach. Termination rights are also usually set forth in the contract and again, notice is generally required.
Care must be taken when drafting and serving these notices, as a defective notice may result in you yourself wrongfully terminating the contract.
Wrongful termination by the owner can have the serious effect of releasing the builder from the obligation to complete the work and also may allow the builder to claim a sum for the works already performed which is in excess of the contractual price.
Wrongful termination by the builder can have the serious effect of allowing the owner to re-take possession of the site and to engage an alternative builder to finish the works.
Not only would you not be entitled to payment for the balance of the contract works to be performed, but any costs incurred over and above the balance of the contract price in having the works finished by another builder can be claimed against you.
Any dispute in Domestic Building Dispute Resolution Victoria (“DBDRV”) or the Victorian Civil and Administrative Tribunal (“VCAT”), see below, will be time consuming and costly. The results are almost never certain, so it is sensible to sit down and try to work out a suitable settlement of the dispute with the other party if at all possible. A formal mediation with a qualified mediator is often invaluable in this regard.
If you are unable to resolve the dispute by negotiation, then most disputes will need to be referred to the DBDRV.
The DBDRV is a newly formed independent government agency.
Formerly, parties to a domestic building dispute under the DBC Act could immediately commence a proceeding in VCAT.
Now, all domestic building disputes which involve the owner on the one hand, and either the builder, a building practitioner, a sub-contractor or an architect on the other hand must be referred to the DBDRV prior to initiating a VCAT proceeding, unless an urgent injunction is being sought.
An application for conciliation must be made within 10 years of completion of the works, regardless of whether the subject matter of the dispute was not detected until sometime later, as is often the case with defective workmanship.
If a referral is accepted by the DBDRV, then it will be the subject of a conciliation hearing, unless the Chief Dispute Resolution Officer (“the CDRO”) concludes that the matter is unsuitable for conciliation. Conciliation involves a conciliation officer assisting the parties to resolve the dispute by agreement.
If the matter is not resolved by agreement at conciliation, then you or the builder may request the CDRO to appoint an assessor, who will assess whether the works are defective or incomplete and prepare a report and recommendations.
The CDRO may also issue a dispute resolution order in certain circumstances.
A dispute resolution order may require the builder to perform further building works and/or require the owner to pay a specified sum of money into the DBDRV Trust Fund, to be released to the builder once the work is completed.
VCAT – General
If the CDRO issues a certificate stating that conciliation was unsuccessful or that the matter was unsuitable for conciliation, the owner or the builder may issue a proceeding in VCAT.
Technically either party may instead issue a proceeding in a state court, but if the owner makes an application for a stay prior to evidence being heard in a final hearing, then the Court must stay the proceeding.
Accordingly, we never recommend issuing domestic building dispute proceedings in a court, unless the other party has consented in writing.
VCAT will usually list the matter for a directions hearing, at which a Tribunal member will make orders scheduling the further steps to be taken and the dates by which such steps must be taken.
Typically, these steps will include filing points of claim and points of defence, providing copies of relevant documents to the other party, mediation or a compulsory conference (see below), filing expert reports and the fixing of the matter for final hearing (see below).
Additionally the owner or the builder may apply to VCAT to review a dispute resolution order made by the CDRO, though the grounds of review are limited.
In rare cases, where an urgent injunction is sought to prevent the builder from taking certain action, or requiring the builder to take certain actions, the owner may apply directly to VCAT without the need to first have the matter referred to the DBDRV. The principles governing the granting of injunctions are complicated.
However, a party cannot circumvent the DBDRV process simply because he or she wants an order urgently.
VCAT – Mediation/Compulsory Conference
VCAT uses two methods of alternative dispute resolution, prior to a final hearing.
These are mediations and compulsory conferences.
Both are similar in that the aim is for the mediator or Tribunal member to assist the owner and the builder to discuss the issues and reach a negotiated resolution between you.
The main difference is that mediation is conducted by an accredited mediator engaged by VCAT (usually a lawyer or a builder), whereas a compulsory conference is conducted by a Tribunal member. What is said at a mediation or compulsory conference is confidential and “without prejudice”, meaning that the fact that certain things were said at the mediation or compulsory conference cannot be raised at any subsequent hearing, without the consent of both the owner and the builder.
As the discussions at a compulsory conference are confidential and cannot be used in a subsequent hearing, the Tribunal member who conducts a compulsory conference in a matter cannot subsequently be appointed to conduct the final hearing.
VCAT – Final Hearing
If the matter fails to resolve at mediation or compulsory conference then it will be listed for final hearing.
It is common for the length of the hearing, particularly where disputes about multiple defects and/or incomplete works are involved, to be at least 5 days, and sometimes several weeks.
Much careful preparation is required for a final hearing, including the gathering and ordering of all required evidence especially expert witness testimony. VCAT is not bound by the rules of evidence but in significant building disputes, it tends to follow reasonably closely the rules of evidence that apply to courts. Again, whilst the starting position at VCAT is the parties will bear their own legal costs, regardless of the outcome, this position can, and often is, departed from in many building disputes.
Once the evidence is given by both parties (sometimes by written witness statements and sometimes by oral evidence in the witness box), the Tribunal will make a final decision which will bind you both. Sometimes the decision is made immediately after the hearing concludes, but more often the Tribunal member will reserve his or her decision, which may or may not be delivered until weeks or months after the hearing has concluded.
Additionally, if you are a building subcontractor, the following information is worth noting:
Security of Payment Legislation
The Building and Construction Industry Security of Payment Act 2002 (Vic) (“the SOP Act”) provides a quick and relatively inexpensive method for recovering payments from head contractors.
It cannot be used to claim progress payments from a home owner in relation to a domestic building contract but it can be used against a builder contracted by the home owner, if you are sub-contracted by that building contractor.
The SOP Act provides that “paid when paid” and “paid if paid” clauses have no effect against a payment claim made under the SOP Act, and if the sub-contract does not provide a date for progress payments, then the SOP Act will supply these dates. The process involves you submitting a payment claim.
If the head contractor does not submit a payment schedule within the required time (usually 10 business days from receipt of the payment claim) then the amount claimed becomes due and payable. If not paid, then notice can be served allowing you to suspend works.
If a payment schedule disputing all or part of the payment claim is submitted by the head contractor then you can make an adjudication application. An adjudicator is appointed, either by agreement between you and the head contractor or by an authority nominated under the SOP Act, and he or she determines the application after receiving an adjudication response from the head contractor and any other information that he or she requests relating to the application.
An adjudication decision is binding on you and the head contractor, and only limited review rights exist possibly submitting a payment schedule and, if a payment schedule is submitted, you submitting an adjudication application
Whether you are an owner, builder or sub-contractor, attempting to resolve a building dispute can be extremely stressful and difficult for the average owner. We are experienced in this area and are always ready to guide and assist you though this challenging process.
Can we assist you with issues relating to a building dispute?