Home Building Amendment Bill 2008

The Home Building Amendment Bill 2008 (NSW) proposes fast track licence suspension for recalcitrant builders and introduces a new trigger for the home warranty insurance indemnity.

Fast track to licence suspension

A new proposed section 42A, is to provide that where a builder fails to comply with an order of the Consumer Trader and Tenancy Tribunal or of a court, to pay an amount of money, the builder's licence is to be suspended until the order is complied with. The suspension is to apply 28 days after the due date for payment.

There are two exemptions:

• where the decision of the Tribunal or the Court is the subject of a stay order, pending an appeal against that decision; and

• where the Director General defers the operation of the suspension of the licence, which can be for any period up to the date on which the licence is due for renewal.

When introducing the Bill, the former Minister for Fair Trading, Linda Burney, did not explain the need for that discretion. One theory is that it may be to avoid other clients of the defaulting builder being prejudiced.

All orders against a builder to pay money or undertake work made by the Tribunal are reported directly to the Director General of Fair Trading. This is not the case in respect of orders by the District or Supreme Courts.

The proposed amendments include a requirement that, where the suspension applies, the builder must as soon as practicable return the licence to the Office of Fair Trading or, if unable to do so, provide a written statement as to why the licence cannot be delivered up.

A fourth trigger for home warranty insurance indemnity

The 'last resort' system of home warranty insurance in New South Wales and other states and territories other than Queensland has been the subject of considerable criticism in recent years. Under the last resort system, insured home owners are not entitled to be indemnified for loss or damage that they have incurred as a result of their builder's defective work or failure to complete work until they have successfully:

1. prosecuted the builder in the Consumer Trade and Tenancy Tribunal, District or Supreme Court;

2. resisted any appeals by the builder of such decisions; and

3. prosecuted bankruptcy or winding up proceedings against the builder.

The only exemption is if the builder becomes insolvent, dies or disappears. (three triggers)

An element of the Home Building Amendment Bill 2008 is to introduce a new trigger to the indemnity. This is that the builder's licence is suspended under section 42A of the Home Building Amendment Bill 2008 (Fourth Trigger).

The Fourth Trigger is not however, the magic pill it may at first seem. If a builder against whom a Tribunal or Court order is made appeals and obtains a stay of enforcement, the builder's licence will not be suspended until the Court or Tribunal order is confirmed (or the appeal withdrawn). Further the Director General of Fair Trading has been granted an unexplained discretion to defer the operation of the suspension of the licence, a discretion that is expressed not to be reviewable by the Administrative Decisions Tribunal.

Most Tribunal and Court decisions on building related matters will present ample potential grounds of appeal. In most instances, a stay of enforcement of a decision being appealed will not be difficult to obtain. The Fourth Trigger will not help much if the builder elects to appeal the Tribunal's or Court decision. However it will make it unnecessary for the home owner, after they had been successful in its court proceedings against the builder (and such decision has been confirmed on any appeal), from having to commence and fund bankruptcy or winding up proceedings against the builder. This is welcome relief.

The ability to claim upon the builder's licence being suspended is an adjustment of the last resort system in the right direction, although many argue the last resort system is fundamentally flawed and highly inappropriate in the context of consumer protection.

The new Fourth Trigger will only apply in respect of insurance policies written upon the Home Building Amendment Bill's provisions, that are currently the subject of debate in New South Wales Parliament, but a commencement date is not yet known.

The beneficiaries of home warranty insurance policies written before that date will not have the benefit of the Fourth Trigger.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.