HWI Certificates obtained by fraud, a cautionary tale of a vendor, his son-in-law and sham building contracts

In Carr v Miller (2018) NSWSC 1424, the New South Wales Supreme Court (the Court) considered whether a purchaser was deceived into completing a sale contract through (inter alia) the provision of fraudulently obtained home warranty insurance (HWI) certificates. The Court was further required to determine whether a subjectively innocent party could be vicariously liable for the deceit and whether a party claiming to be the builder can be estopped from denying the applicability of statutory warranties under the Home Building Act 1989 (NSW) (HBA).

Facts

The owner of a property (the Owner) made arrangements with his son in law (the Son-in-law) to undertake an extensive redevelopment of the property. When the works were substantially complete, the Owner agreed to sell the property to the plaintiff (the Purchaser). The Owner entrusted the entire process of carrying out the works and selling the property to the Son-in-law. The Son-in-law was not a licensed builder and could not be an owner-builder under the HBA.

Completion of the sale contract between the Owner and the Purchaser was subject to and conditional on the Owner providing evidence that all building work undertaken on the property was covered by a HWI policy.

The Purchaser’s claims

The Purchaser claimed she was deceived into completing the sale contract by the provision of false certificates of HWI. The Purchaser submitted that but for the provision of the false certificates, she would not have completed the purchase. The Purchaser quantified her loss as the difference between the purchase price paid and what was the true value of the property, due to defective building work.

The Son-in-law maintained that a builder (the Alleged Builder) completed the building work on the property because the Alleged Builder had supervised (although neither as an employee or a sub-contractor to him) a person who had done some of the work, for the Son-in-law.

Claim of deceit against the Owner and the Son-in-law

The Court found that the Alleged Builder did not carry out the works. In substance the works were carried out by the Son-in-law.

The Court found that the Alleged Builder and the Son-in-law prepared and backdated three sham contracts for residential building work on the property. The contracts were created for the purpose of persuading the HWI underwriter to issue certificates of insurance, which covered work to be carried out by the Alleged Builder as builder and the Son-in-law as owner. The Alleged Builder and the Son-in-law knew that the HWI certificates were procured by knowingly false representations made to the insurer.

The Court held that by providing the HWI certificates to the Purchaser, the Son-in-law made an implied false representation that the building work was covered by a HWI policy in accordance with the sale contract. The Son-in-law knowingly made the false representations to the Purchaser to induce her to complete the sale contract, which the Purchaser relied on.

The Court acknowledged that the Owner was not personally involved in and had no knowledge of the Son-in-law’s actions. However, the Owner entrusted the performance of the building works and the provision of HWI certificates to the Son-in-law, with the inevitable conclusion that the Son-in-law was the Owner’s agent. The Owner was therefore liable for the consequences of the Son-in-law’s actions. For the same reasons, the deceit claim against the Son-in-law also succeeded.

Breach of statutory warranties claim against the Alleged Builder

The Court was required to determine whether the Alleged Builder was liable for work done in breach of the warranties under section 18B of the HBA.

The Court found that the Alleged Builder was estopped from saying that he did not perform the building work subject of the contracts. That estoppel was found to arise, notwithstanding that the contracts were shams, created solely for the purpose of obtaining HWI certificates to induce the Purchaser to complete the sale contract. The Court held that it was too late for the Alleged Builder to resile from the represented state of affairs.

The decision is a cautionary tale for those who develop property using unconventional contractual arrangements and/or unlicensed builders and yet notwithstanding, seek to cloak those arrangements with a veneer of compliance with the HBA.

Editorial: Christine Jones & Lauren Stables

In practice and courts

HIA Submissions Building and Construction Industry Security of Payment Amendment Bill 2018 and Securing Payments in the Building and Construction Industry - A Proposal for ‘Deemed’ Statutory Trusts - NSW (21 September 2018).

BPB: Updates to ‘Planning for Bush Fire Protection’ Planning for Bush Fire Protection 2018 intended to commence mid-2019. The NSW Rural Fire Service has released a ‘pre-release’ version of Planning for Bush Fire Protection 2018. It is intended to commence in mid-2019 and replace Planning for Bush Fire Protection 2006. Click here for more information about the updates and transitional arrangements (11 September 2018).

New dates for Environmental Planning & Assessment Act Updates Councils, certifiers and other industry practitioners have more time to implement some of the recent EP&A Act updates. Changes affect new provisions for building and subdivision certification, Local Strategic Planning Statements for councils in the Greater Sydney Region and Community Participation Plans. While most of the changes will commence on 1 March 2018, there will be a number of other changes that will involve further design and consultation from mid to late 2018.

Cases

Nutek Constructions Pty Ltd v Slotwinski (No 3) [2018] NSWCATAP 226 INTERLOCUTORY ORDERS – Application for a stay – no question of principle Civil and Administrative Tribunal Act 2013 (NSW) For the following reasons, each application for a stay is dismissed. Appellant’s submissions - The Homeowner Ms Slotwinski has not complied the order to pay the Builder $36,500 and has not paid to the appellant the ordered amount. Accordingly, there is a significant risk that should the costs be paid to the Homeowners, the amounts would not be recoverable in the event of a decision being made in any of the appeal proceedings that reverses the decision dated 26 July 2018, In that regard, the Builder submits that Ms Slotwinski has pending bankruptcy proceedings before the Federal Court of Australia.

Carr v Miller [2018] NSWSC 1424BUILDING AND CONSTRUCTION – Residential property contained substantial defects – where purchaser induced to complete purchase through the provision of fraudulently obtained home warranty insurance certificates – whether third defendant (vendor) vicariously liable for the deceit of the second defendant (son-in-law). BUILDING AND CONSTRUCTION – Damages for defects – where first defendant (builder) named on the insurance certificates did not carry out the building works – whether first defendant estopped from denying the applicability of statutory warranties – assessment of rectification damages. CONTRACT – Interpretation of Deed which purports to deal with any claims relating the building words – whether Deed requires the second defendant to indemnify the third defendant for his deceitful conduct. COSTS – Usual order for hearing not complied with – produced court book was productive of excessive inefficiencies – solicitors not to charge clients for costs in creating and remedying the court book.

Kong Crete Pty Ltd v Molter [2018] NSWCATAP 219 (1) Leave is refused for the appellant to appeal on grounds other than questions of law. (2) The appeal is dismissed. APPEAL – Home building dispute – a hearing in the absence of a party - no error of law on the grounds of procedural fairness - no other grounds for leave to appeal. Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW).

Champion Homes Sales Pty Ltd v Bailey [2018] NSWCATAP 212 (1) Leave to appeal is refused and the appeal is dismissed. APPEAL – Interpretation of contractual provisions – question of law – leave to appeal. Civil and Administrative Rules 2014; Civil and Administrative Tribunal Act 2013; Home Building Act 1989.

Brennan Constructions Pty Ltd v Davison [2018] NSWCATAP 2101. Appeal dismissed. 2. Leave to appeal refused. 3. The stay of order (2) of the Tribunal’s orders of 12 June 2018 in matter HB 17/22725 is lifted. BUILDING AND CONSTRUCTION – Whether the Tribunal erred in not making a work order pursuant to s 48MA of the Home Building Act – whether the Tribunal erred in allowing late evidence – whether the Tribunal erred in failing to consider defences of the Appellant. LEAVE TO APPEAL – whether leave to appeal should be granted because the Tribunal failed to appropriate weight to the Appellant’s affidavit evidence - whether leave to appeal should be granted because the Tribunal preferred the expert’s report relied on by the Respondents over the Appellant’s expert report. Civil and Administrative Tribunal Act 2013 (NSW); Environmental Planning and Assessment Act 1979 (NSW); Home Building Act 1989 (NSW).

Rekrut v Champion Homes Sales Pty Ltd (No 2) [2018] NSWCATAP 208 (1) A hearing on costs is dispensed with under s 50(1)(c) of the Civil and Administrative Tribunal Act 2013 (NSW). COSTS – Indemnity costs - Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Consumer Trader and Tenancy Regulation 2009 (NSW); Home Building Act 1989 (NSW).

Legislation

Bills revised following amendment in Committee Strata Schemes Management Amendment (Building Defects Scheme) Bill 2018