Cirocco: Round the Houses

The South Australian Building Work Contractors Act 1995 has always been a curious piece of legislation. By section 32, it sets up some statutory warranties which apply to domestic (i.e. residential) building work. These statutory warranties are very much in the same vein as the warranties which would in any event be implied as a matter of common law. Then, by section 37, it sets up some quite wide statutory powers, whereby the Magistrates Court can do various things, including ordering the builder to perform remedial work (a surprising power, since the law has for a long time set its face against granting injunctions for this purpose, since such injunctions are notoriously in spawning further disputes) and making an order for compensation where there has been a breach by the builder of the section 32 statutory warranties. It also confers a power on the Magistrates Court flowing in the other direction: to require payment of an amount due under a domestic building contract. Note the numbers: 32 is the warranties and 37 is the powers.

Anomalously, these powers are vested in the Magistrates Court regardless of the amount in dispute. It seems pretty clear that the section 37 powers can only be exercised by Magistrates Court, subject to this: that if the claim is for more than $100,000, then the Magistrates Court is obliged to refer the proceedings on the application of any party to the District Court, and the District Court then inherits the same section 37 powers.

There have for some time been a couple of unanswered questions in relation to this rather bizarre legislation, and in particular:

  • Most domestic building work contract will contain express provisions that cover much the same ground as the statutory warranties, and it seems reasonably clear that those express provisions apply in their own terms in parallel with the statutory warranties. But what about the case where there are no such express provisions; do the usual terms (sometimes referred to as Hancock v Brazier terms) fall to be implied as a matter of common law?
  • The wording of section 32 is such as to imply terms into the contract. Is it open to the owner, in parallel with or as an alternative to seeking an order for compensation under section 37, simply to seek damages at common law for breach of section 32?
  • If the answer to that second question is “yes”, is there anything to stop an owner from instituting proceedings in the district court for damages? Such a claim for damages might be for breach of
    • The express terms of the contract, and/or
    • If the answer to the 1st question is “yes”, the usual terms implied as a matter of common law, and/or
    • The section 32 statutory warranties?

The District Court has recently visited this territory in the first of a pair of cases in Cirocco Constructions v Clarke [2015] SADC 98. Unhappily, the answer which emerges from this judgment is far from clear. It formulated the question before it for determination by way of preliminary issue as follows:

4              The jurisdictional question that arises is whether the District Court has jurisdiction to try monetary disputes for claims involving domestic building work contracts, within the meaning of the Building Work Contractors Act 1991 (SA).

And then

12     The question of construction that arises may alternatively be expressed as whether the Building Work Contractors Act confers exclusive jurisdiction over disputes arising under Part 5 of the Building Work Contractors Act, on the Magistrates Court. In the former situation the within action filed by the plaintiff in the District Court is incompetent. If not, it is validly instituted.

In the case in question, the claim was by a builder which wanted its money, which had been certified under the contract, and was seeking summary judgment. The application was resisted on the basis that some of the work had not been undertaken in a proper and workmanlike manner. And, as a preliminary matter, the defendant said that there was at least a triable issue as to whether the District Court had any jurisdiction at all.

It should be noticed at once that the two formulations of the preliminary issue set out above are by no means identical. It might seem blindingly obvious that a builder who wants to be paid the money due under a domestic building contract can sue for it in whatever court he likes, or indeed seek to recover it by way of arbitration if the contract contains an arbitration clause. And so the answer to the preliminary issue is formulated at paragraph 4 of the judgment was obviously going to be “yes”, of course a builder can make his claim in the District Court, and as a matter of common sense that is a far more sensible course than issuing proceedings in the Magistrates Court when the claim is well above the Magistrates Court limit of $100,000. And indeed that was the answer that Judge Tilmouth gave. But what is much less obvious is what the court said on the way to that conclusion.

First, the court very sensibly recognised the uncertainty about the section 37 power jurisdiction:

15           A closer examination of the subject provisions, expose a degree of ambiguity in divining the legislative intent. Parliament has not said in so many words that the jurisdiction conferred on the Magistrates Court by s 37 of the Building Work Contractors Act is exclusive.

Now, there is nothing very controversial about the notion that the section 37 powers, which the act gives to the Magistrates Court, can only be exercised by the Magistrates Court, unless the Magistrates Court refers those proceedings to the District Court, in which case the District Court inherits those powers. But look at the way the judge expressed this notion:

21 … As matters presently stand, the additional statutory remedies that might otherwise be available to the defendant under Part 5 of the Building Work Contractors Act, cannot be invoked by her in this court, since they are powers reposed exclusively in the Magistrates Court and are contingent on an application being made to that Court in the first place.

Part 5 of the Act includes not only section 37, which includes the special powers, but also section 32, which sets up the statutory warranties. Suppose a party seeks damages at common law for breach of a section 32 warranty. Is that a statutory remedy that the judges talking about here? One might think not, since damages at common law are not a statutory remedy. But then we get this troublesome paragraph:

28           It follows from the evident objectives and purposes of the Building Work Contractors Act, coupled with the structure and jurisdictional constraints contained in the Magistrates Court Act, that the effect of s 37 of the Building Work Contractors Act is to vest concurrent jurisdiction in proceedings for monetary claims under domestic building work contracts in the general courts exercising civil jurisdiction, but that exclusive jurisdiction is conferred on the Magistrates Court with respect to claims for relief in disputes involving ‘some question of whether building work has been performed in accordance with the contract’.

The first limb of this sentence suggests that the section 37 powers run concurrently with the usual civil jurisdiction, i.e. the ordinary power of any court to award damages for breach of contract. But the second limb suggests that the exclusive jurisdiction is not merely in respect of the section 37 powers, but with a much broader category of cases which involve some question of the quality of the work.

The judgment goes on to consider the practicalities of the case in question, where the defendant had yet to bring her claim the alleged defects. It was not clear whether she could or would bring that claim for defects in the Magistrates Court (which would lead to multiplicity of proceedings) or in the District Court (whether there might have been a problem with her seeking the section 37 remedies). This is what the judge said:

  1. Should the defendant fail to bring proceedings in the Magistrates Court, that would be an end to the matter. The defendant would then be confined to her remedies as presently available to the District Court in the exercise of its ordinary civil jurisdiction. These would not in that event, encompass access to the powers furnished by s 32 of the Building Work Contractors Act.

There aren’t any powers furnished by section 32. Query whether the judge here intended to refer to section 37. The may also have been some confusion in paragraph 27 of the judgment, in which the judge referred to the transfer orders which “pick up and transfer to the district court the additional powers of deposition available under section 32 that would not otherwise be available to it”. Again, did the judge mean section 37 here?

So where does this leave us? It is far from clear. Decisions of the District Court do not have the same authoritative status as decisions of the Supreme Court, and arguably, the rather difficult paragraphs referred to above are obiter. Tentatively, it seems that the position is probably as follows,

  • That the section 37 powers are in addition to, and not by way of substitution for, the rights and obligations which arise from the express terms of the contract;
  • That whilst a section 37 powers are only capable of being exercised in proceedings commenced in the Magistrates Court, the Act imposes no limitation on the usual powers of the District Court, the Supreme Court or indeed an arbitrator to order the payment of money due pursuant to a domestic building contract (assumpsit) or to award damages for breach of express or implied terms;
  • That the implied terms – which any court can award damages for breach of – include the statutory warranties under section 32.

These conclusions are somewhat reinforced by what Judge Tilmouth said in the second of the pair of cases [2015] SADC 107 just a few days later on 9th July 2015, albeit in a slightly different context. Paragraph 18 of this second judgment starts and finishes as follows:

  • A proper reading of the Building Work Contractors Act taken as a whole does not suggest that anything contained therein displaces common law remedies available under contracts, such as defences for equitable set-off, or counter-claims for liquidated damages, based on the failure to employ proper standards of workmanship, or to perform residential building contracts to the standard required by the Building Work Contractors Act… The express recognition of ‘monetary’ claims for amounts falling due under domestic building works contracts in s 40(1)(a) of the Building Work Contractors Act, supports that conclusion. The reference to claims ‘for relief in the nature of an order to carry out work’ pursuant to s 37(6)-(8) in s 40(1)(b), supports the conclusion that the statutory remedies and warranties conferred by the Building Work Contractors Act were intended to be in addition to, rather than in derogation of common law defences and remedies.

So far so good. Much more problematic in this second judgment, although by no means unique to this case, are the words in the middle of that paragraph:

Clearly there would have to be strong words indicating an intention to displace long established common law rights to achieve that purpose: Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd,[1] Construction Services Civil Pty Ltd v J & N Allen Enterprises Pty Ltd,[2] Triden Contractors Pty Ltd v Belvista Pty Ltd.[3]

Gilbert Ash v Modern Engineering was the English case which overturned the old notion, set up by Dawnays v Minter, that a certificate was to be treated like a cheque, effectively as cash, with no set-off being allowed against it. A mere contractual scheme providing for the payment of certificates is insufficient, said the House of Lords, to exclude a right of set-off. Accordingly, defendant was and is permitted in England to set up a defects claim in answer to a summary judgment application based on a typical certificate for payment. That is why, in England, Sir Michael Latham recommended the introduction of adjudication as a prompt and effective means for a contractor to obtain payment. In Australia, however, there is a string of cases in which Gilbert Ash v Modern Engineering has been ignored; Judge Tilmouth reviewed these and concluded:

  1. All the above cases stand for the universal proposition that each contract must be construed according to its own terms. They singularly march in the same direction in concluding that when a contract provides that obligatory progress payments must be made according to certified sums, as they fall due for payment without deduction on account of defective work, irrespective of the existence of valid set-off, counter-claim or other defences. Such defences therefore fall for later determination, according to established contractual principles. In other words translated to the facts of the instant case, it was the parties’ intention, expressed in the subject contract, that Cirocco Constructions be paid the full amount of each progress payment duly certified, in order to ensure its ability to continue completing the contract works. Invariably, when the contract fits the latter description, summary judgment can be entered.

What is bizarre is that the court should have invoked Gilbert Ash v Modern Engineering just a few paragraphs before concluding the exact opposite!

Be that as it may, the judge found that one of the certificates being sued on was unarguably valid, and he ordered payment of that. In respect of the other certificate, there was a reasonable argument as to its validity, and so there was no summary judgment for that one.

[1]    [1974] AC 689, 717.

[2]    (1985) 1 BCL 363, 367-368.

[3]    (1987) 3 BCL 203, 213.

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