There has as yet been no authoritative determination of the question whether an owner’s decision to sell a defectively constructed home without first having remedied the defects will preclude subsequent recovery of compensation with respect to those defects pursuant to section 12A(1) of the Builders’ Registration Act 1939 or its successor, section 5 of the Building Services (Complaint Resolution and Administration) Act 2011.  For ease of reference, I shall refer to both these provisions collectively (and in the alternative) as “section 12A” and to both these Acts collectively (and in the alternative) as “the Act”.

The question posed above was the subject of obiter comment by the Disputes Tribunal in Bacica & Anor and Diploma Construction Pty Ltd, 19 December 2000 at [3.2.3].  Those comments are reproduced in the reasons for decision of the learned Senior Member Raymond in Diploma Construction Pty Ltd and Bacica & Anor [2007] WASAT 151, at [7], as follows:

“Can the Owners claim after they have sold the property? There is nothing in the Act to stop previous owners from claiming providing they prove that they have at all times met the consequences of the fault and done the repairs. This is not a case of an owner accepting less than the contract price and leaving the new owners to repair the alleged faults. In such a sale, the owners, both previous and present, would have no claim on the Building”.

The learned Senior Member then commented in parentheses as follows:

“There is no reasoning given for this conclusion and it is not necessary in the context of the present application to deal with it. By the Tribunal not dealing further with this matter it should not be assumed that the conclusion stated is approved”.

More recent (and authoritative) dicta on this question appear in Hall J’s decision in Twinbrook Corporation Pty Ltd v WMP Pty Ltd [2012] WASC 41 at [45].  There, having identified the obvious problems that might arise if one of several previous owners of a defectively constructed home were to be compensated for such defects by the builder but either never become liable to any subsequent owner, or become part of a chain of liability as between several owners, His Honour states:

“The most obvious way of dealing with this problem is to limit any claim to the current owner.  This is the interpretation I prefer.  If, however, the provision is to be interpreted more broadly…then there must still be some practical limitation placed upon it, and the most obvious such limitation is the incurring of some loss (or at least, some liability)”.

This article considers whether, as a matter of law, an owner who does not “prove that they have at all times met the consequences of the fault”, accepts “less than the contract price” upon a sale of the property and leaves “the new owners to repair the alleged faults” would “have no claim on the builder”, or whether the alternative “practical limitation” proposed by Hall J is more consistent with the legislative intent of section 12A.  The analysis which follows begins with a closer consideration of the relevant findings in Bacica.

The Relevant Findings in Bacica

The learned Senior Member said in Bacica at [20]:

 “A claim in the common law courts of the…..nature [of a complaint pursuant to section 12A] would remain vested with the former owner and if the…..Act intended a different result it would have to be very clearly expressed”.

There is no such “very clear expression” of a legislative intention to displace this common law position for the purposes of a complaint made pursuant to section 12A.  It having thus been settled that the right to make a claim pursuant to section 12A vests at the time of the event giving rise to that statutory right, namely the faulty or unsatisfactory performance of building works by a builder, the only remaining question concerns the preconditions to the vesting or accrual of that right.

On one reading of the section (which the Disputes Tribunal appeared to favour at first instance in Bacica), this right does not accrue unless or until the owner has actually incurred or will at some point in the future incur the cost of rectifying defective building works, by virtue of the following words in section 12A:

“…the Disputes Tribunal may by order in writing…order [the builder] to –

1. ..; or
2. pay to the owner of the building such costs of remedying the building work that is faulty or unsatisfactory as the Disputes Tribunal considers reasonable…” (my emphasis).

Alternatively, these operative words in section 12A may be interpreted as referring only to the measure of compensation that an owner entitled under section 12A may recover, rather than referring to a precondition to that entitlement to recovery. According to this interpretation, by the time the above-quoted words become operative, the right to recover under section 12A will have already accrued. In other words, at the point where the owner of a building suffers loss or damage as a result of a builder’s faulty or unsatisfactory workmanship, their right to recover compensation for such loss or damage pursuant to section 12A will have accrued and the reference in paragraph 12A(1)(b) to “such costs of remedying the building work that is faulty or unsatisfactory as the Disputes Tribunal considers reasonable” is a reference simply to the measure of compensation that the owner is then entitled to recover.

Why this is the preferable interpretation of Section 12A 

This interpretation is preferable because:

1. it is more consistent with the common law position: see, for example, Bryan v Maloney (1995) 182 CLR 609, in which the subsequent owner of a defective structure was compensated for the diminution in the value of the structure resulting from latent defects which were not reasonably detectable at the time of the Plaintiff’s purchase of the defective structure; and
2. to interpret the operative provisions of the Act in such a way as to make an owner’s right of recovery against a builder for faulty or unsatisfactory workmanship conditional upon the owner’s expenditure of money on remediation works prior to sale would create the unjust situation of requiring an aggrieved owner to choose between:
   1. keeping a defectively constructed property until protracted Tribunal proceedings have been determined, which may cause further financial hardship as a result of real estate price fluctuations; and
   2. risking the loss of their right to recover altogether, notwithstanding that, whilst saving the cost of remediation works upon disposing of the property without first rectifying the defects, the owner will inevitably suffer another form of loss, as a result of the defective structure’s diminished market value. 

That is, if the right to recover pursuant to section 12A be conditional upon the owner’s undertaking of remediation works prior to sale, then, should such defects not be rectified before sale, the owner will invariably lose money on the sale of the property as a result of the defects. This is because, by virtue of those defects, the owner will inevitably get less for the property than they would have got if the builder’s workmanship were not faulty or unsatisfactory.  This cannot be presumed to have been the intention of the legislature in drafting Section 12A of the Act, absent clear words to such effect. Where it is open to interpret the operative words of Section 12A consistently with the requirements of justice and with the common law position, that is the interpretation which ought to prevail (section 18 of the Interpretation Act 1984).

In my view, the purpose and objects of the Act would be better promoted by an interpretation of the operative provisions of section 12A which does not have the effect of depriving an owner who has divested herself of a defective building without having first rectified the defects of her entitlement to recover compensation for the faulty or unsatisfactory workmanship giving rise to those defects pursuant to section 12A.  Any consequential difficulties concerning the rights of multiple successive owners as against each other or the unjust retention of “windfall gains” by previous owners who have incurred no expense in remedying defects may be overcome in the alternative manner proposed by Hall J in the above-quoted passage, namely, by making awards under section 12A conditional upon “the incurring of some loss (or at least, some liability)” on the part of the complainant.

Related Havilah Legal service(s): Commercial Litigation, Building & Construction Law