Badov & Anor v Queensland Building Services Authority [2013] QCAT 161

CITATION: Badov & Anor v Queensland Building Services Authority [2013] QCAT 161 PARTIES: Mr David Badov & Ms Lena Benett (Applicant) V Queensland Building Services Authority (Respondent) APPLICATION NUMBER: GAR288-12 MATTER TYPE: General administrative review matters HEARING DATE: On the papers HEARD AT: Brisbane DECISION OF: Kate Buxton, Member DELIVERED ON: 9 April 2013 DELIVERED AT: Brisbane ORDERS MADE: 1. Decision of the QBSA refusing the applicant’s claim under the Statutory Insurance Scheme is affirmed. CATCHWORDS: Decision of the QBSA in relation to the statutory insurance fund – review under section 86(1)(h) and 87 QBSA Act – whether fixed price or cost plus contract – contract validly terminated – claim refused by Authority as contract determined to be on a “cost plus” basis APPEARANCES and REPRESENTATION (if any): This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act). REASONS FOR DECISION [1] The applicants, Mr Badov & Ms Benett, wish to erect a substantial dwelling on their property in Sovereign Island, Paradise Point. In around June or July 2011 they contracted with Vitto Ulliana Constructions Pty Ltd for the construction of a dwelling on that site. The sum of $99,000 was paid to the builder by way of deposit and insurance with the Queensland Building Services Authority was transacted. -- 1 of 6 -- 2 [2] On 7 November 2011 Mr Badov and Ms Bennett terminated the contract with the builder, pursuant to clause 29.1 of the contract, because the builder’s financial difficulties required it to enter into external administration. Apparently the builder was without funds to return the deposit monies. At the same time Mr Badov and Ms Benett advanced a claim against the insurance fund for recovery of the sum of $99,000. [3] There is no evidence or suggestion by either party that, at this point, the builder had commenced work or undertaken any work either for the sum of $99,000 or otherwise. It is therefore the position of Mr Badov and Ms Bennett that, if they are unable to recover the deposit from the insurance fund, that sum of money will be lost. Decision of the Authority [4] The Authority notified Mr Badov and Ms Bennett, by letter dated 21 November 2011, of its decision to disallow the claim under the statutory insurance scheme. It is against that decision that the applicants seek review under sections 86(1)(h) and 87 of the QBSA Act. [5] It is common ground between the parties that a contract of insurance was entered into in relation to the proposed construction work and that a certificate of insurance was issued by the Authority providing conclusive evidence that the work was covered by the statutory insurance scheme.1 [6] The details of the claim made by Mr Badov and Ms Bennett, through their agent Mr Poole, are set out in the Authority’s statement of reasons for decision filed on 8 October 2012. It is sufficient here to recount that on 7 November 2011 Mr Poole notified the Authority that the contract had been terminated and made a “non completion” claim upon the fund. The Authority reviewed this claim and rejected the claim pursuant to clause 1.2 of the insurance policy conditions on the basis that the building contract was not for a fixed price. This decision was notified to Mr Badov and Ms Bennett by letter dated 21 November 2011. [7] Following exchanges between the Authority and the applicants solicitors the Authority agreed to reconsider the decision rejecting the claim. On 16 July 2012 the respondent (through Mr Peter Jacques) wrote a letter to the applicants solicitor outlining the refusal to allow the claim against the fund and setting out the reasons for that refusal. The applicants then filed their review application, within time, on 13 August 2012. The statutory insurance policy [8] Insurance policy conditions (edition 8, effective 1 July 2009), were incorporated into the contract of insurance relevant to the contract for the relevant construction. Part 1 of the policy deals with claims in the event of non completion. Clause 1.2 provides as follows: 1 Sections 68(3) and 69(1) QBSA Act. -- 2 of 6 -- 3 1.2 termination of contract The BSA is only liable to pay for loss under this part when the contract is for a fixed price and when the insured has properly terminated the contract with the contractor. [9] The Authority has maintained that the contract entered into between Mr Badov and Ms Bennett on the one hand and the builder on the other hand was not a “fixed priced” contract but, rather, was a “cost plus contract”. In this case, clause 1.2 of the policy would not respond to a claim following termination of that contract. [10] The essential question to be determined in this review application is whether the contract entered into between Mr Badov and Ms Bennett on the one hand and the builder on the other was a “cost plus” contract as contended for by the Authority or whether, in fact, it was a “fixed priced” contract therefore attracting the indemnity offered by clause 1.2 of the statutory insurance policy. [11] The determination of whether the contract is a “cost plus” or “fixed price” contract depends upon a proper construction of the document itself. It is only in the event that the contract cannot be construed by reference to its plain words that in extrinsic issues such as the intention of the parties can be relied upon by this Tribunal. [12] The essential and most compelling piece of evidence relied upon by Mr Badov and Ms Bennett appears on page 3 of the 44 page document. At item 5 on page 3 the parties are invited to fill in details as to the “contract price”. The contract price is nominated as $8million plus GST. In addition, there is a handwritten notation immediately adjacent to the reference to $8million, on all of the copies of the contract provided to the Tribunal, as follows, “the actual cost of the works plus the builder’s margin.” There is conjecture as to whether this endorsement appeared on the version of the documents signed by Mr Badov and Ms Bennett. However, Mr Badov and Ms Bennett have not been able to produce a copy of the contract without that endorsement or any sworn evidence compelling the conclusion that endorsement did not appear on their version of the document when signed. [13] Even if the endorsement which is handwritten on page 3 of the 44 page document was not present at the time of signing the contract price nominated in the sum of $8million plus GST is the only reference to a fixed price or contract price. However, for the reasons set out below, the plain intent of the document, derived from a reading of it as a whole, indicates that this was a “cost plus” contract. The nomination of the contract price at item 5 on page 3 is insufficient to displace that plainly expressed intent. [14] At page 5 of the 44 page contract reference is made to various appendices including appendix 2, customised progress payment schedule and appendix 3, builders fees. The prescribed progress payment schedule which one would expect to see in a fixed price contract at part -- 3 of 6 -- 4 (a) on pages 6 and 7 has been struck through and in part (b) at page 7 the following notation appears, “this is a cost plus contract due to incomplete documentation. Upon receipt of finalised plans and specifications a contract amount will be provided. Please refer to appendix two (2).” The progress payment table on page 8 is also not completed and a handwritten reference is made to appendix 2 rather than nominating stage payments as might be possible if a fixed price had been arrived upon and a percentage of that price could be extrapolated. On page 11 where special conditions can be incorporated the words “see attached cost plus special conditions” appear. On page 12 there is an opportunity for the owner and builder to apply their signatures to the document. Those signatures do not appear on page 12. However, each of the 44 pages of the document has been initialled by each party. The failure to sign this contract may have other consequences but it is immaterial to the interpretation and application of the statutory insurance fund and to the claim made against it in the circumstances. [15] Appendix 2 was described as a customised progress payment schedule. There was reference to a deposit which was to be used as a retainer and retained for use to settle the final invoice for works completed as per appendix 3 there was also reference made to payments as per invoice. The payments were described as “the actual cost of works as per invoice”. Invoices will be every 14 (fourteen) days from the date of commencement, invoices are due and payable 5 working days from the date of the invoice. The payment schedule for the builder’s fees is a set stage payable in addition to the invoices referred to herein, see attached appendix 3. Appendix 3 then set out the way in which the builder’s fee of $385,000 would be paid in staged payments over a 24 month period. A further reference was made to a deposit in the sum of $440,000 there was no explanation from the parties as to why this figure differed from the amount paid by the applicants. However, it is common ground that the sum paid was $99,000 as at the date of termination of this contract. An information sheet is then annexed, signed by each party and, I am satisfied, incorporated into the contract. It was described as “QC1 cost plus special conditions” where hourly rates are nominated for various services together with a “cost plus contract supplement” where further terms of the cost plus contract are set out. [16] A reading of this contract from beginning to end leaves no doubt that it is a contract requiring the owner to pay the actual invoices incurred together with the nominated builder’s margin. The only reference in the 44 pages that is inconsistent with this is on page 3 where a contract price is nominated as $8 million. However, it is a requirement of a cost plus contract that the contract must state a fair and reasonable estimate of the total costs. A reasonable interpretation of the nominated contract price on page 3 is that it is a fair and reasonable estimate of the total costs. If that figure had not appeared an issue may have arisen as to whether the builder complied with the requirements of section 55(1) of the Domestic Building Contracts Act 2000. In the circumstances, it is sufficient and proper to regard that figure as an estimate in the context of the contractual -- 4 of 6 -- 5 provisions as a whole. It is also worth mentioning that the terms referred to above have been typed into the standard HIA QC1 construction contract. Where each of those terms and references are made to a cost plus contract they had been added in and could clearly have been read by all the parties prior to the application of their initials or signature to the document. [17] The statutory obligations prior to entering into a cost plus contract appear to have been adequately discharged. There is a statement within the words of the contract that a substantial part of the work cannot be reasonably be calculated. There is also a suggestion that the contract may have been varied some time in the future once “finalised plans and specifications” were received by the builder (see page 7 of the contract). There is no evidence that these plans or specifications were ever received. I find no basis for asserting that the cost plus contract falls short of compliance with the statutory regime or that any part of the contract is illegal, void or unenforceable. There is therefore no basis upon which any of its terms ought to be severed. The submissions of Mr Badov and Ms Bennett to that effect are rejected. Mr Badov and Ms Bennett also stated that they were unaware of why various clauses had been added or why they were there. It is a matter for Mr Badov and Ms Bennett to obtain any advice they wish prior to entering into such an agreement. Once the contract was entered into, and indeed partly performed on their evidence by the payment of $99,000 to the builder, they are bound by its terms and have not demonstrated any circumstances here which would displace that position. [18] Finally, the fact that a term of a contract would cause financial hardship is not of itself a basis for establishing that it is an unfair contract term. In any event, it is not the term of the contract but the failure of the BSA policy to respond which has placed Mr Badov and Ms Bennett in what they describe as a position of “financial hardship”. Clause 1.2 of the statutory insurance scheme is perfectly explicable. If parties have made scheduled payments pursuant to a fixed term contract one would expect that they had received the benefit of the work up to the stage which that payment becomes due. On a cost plus contract one would expect that costs had been incurred and work had been undertaken by the builder before payments were made. The fact that Mr Badov and Ms Bennett chose to make a payment by way of a deposit in the clear circumstance of a cost plus contract is a matter for them and there is no compelling evidence that there are any terms to which they have agreed which could be described as unfair. [19] The result, no doubt, is disappointing to Mr Badov and Ms Bennett. As I indicated at the outset of these reasons the policy not responding leaves them in a position where they cannot recover the $99,000 paid by way of a deposit or retainer to a building company which is now no longer operating, that is the effect of the operation of the contract they have signed and the limitations within the statutory insurance scheme available by the Authority. -- 5 of 6 -- 6 [20] For the reasons set out above the Tribunal affirms the decision of the Authority under review. -- 6 of 6 --