Domestic Building Disputes: New Regime for Builders

By Sofia Lozanova, Lawyer, MST Lawyers 

On 26 April 2017, the newly established Domestic Building Dispute Resolution Victoria (”DBDRV”) commenced operations.  It is an independent body designed to resolve residential building disputes at low cost and in a relatively short amount of time. 

Before its inception, the Victorian Civil and Administrative Tribunal (”VCAT”) almost had exclusive jurisdiction in relation to these types of disputes. Now, a matter must be referred to the DBDRV before it can go to VCAT (except for actions where a party is seeking some form of restraining order). 

Builders need to be aware of this new regime, how it works and what effect it has on them.

How does the DBDRV resolve disputes?

Referrals

A party must make a referral to the DBDRV in the first instance.  Although it is available to various parties, builders are more likely to find themselves the subject of a referral arising out of a claim by the owner for defective work or a failure to complete the works.

From a builder’s point of view, disputes arise when the owner fails to pay.   

Importantly, if a referral is made against a builder, the DBDRV may demand that the builder stop work for an initial period of 30 days, to allow the parties to conciliate the dispute. 

If this happens, the builder will receive an extension of time under the domestic building contract to complete the work.

Conciliation

The DBDRV’s primary method of resolution is conciliation.  Conciliation is a process similar to mediation, in which parties to a dispute, with the assistance of a conciliator, identify the issues and consider options to resolve the conflict with a view to reaching an agreement.  Unlike a mediator, the conciliator may take a more aggressive approach in getting parties to reach agreement by making suggestions for terms of settlement and providing some form of expert advice.  

The DBDRV will seek to ensure that there is a balance of power between the parties during conciliation.  More often than not, this will mean that lawyers will not be allowed to represent the parties, especially in circumstances where the referrer (i.e. the owner) is not represented.

Obtaining legal advice before the conciliation process is therefore essential, particularly in cases where there is an allegation of breach and a question of termination of the contract arises.   

Assessors

The DBDRV also has access to ”Assessors” who are qualified building practitioners that assess the work and provide an opinion as to whether the work a builder has undertaken is defective or incomplete.

Builders must be aware of the following:

• Assessors are obligated to report any contraventions of the Building Act or the regulations to the Victorian Building Authority; and
• Although the conciliation process is said to be without prejudice, the Assessor’s report and anything said by the Assessor is admissible as evidence in VCAT or other proceedings.

Building Dispute Resolution Orders

If the dispute is not resolved at conciliation or an agreement reached between the parties is not honoured, then the DBDRV may issue a Dispute Resolution Order (”DRO”) requiring a builder to:

• rectify any defective work or damage caused in carrying out the work;
• complete work under the contract; and/or
• meet the costs of rectification by another builder.

Alternatively, the DBDRV may order an owner to:

• pay the builder for monies owing under the contract;
• pay money into trust pending the completion of any rectification work; and/or
• stop doing anything which might prevent a builder from complying with the contract.

Before the DBDRV makes a decision as to whether to issue a DRO or not, it will consider:

• the Assessor’s report(s);
• the extent of non-compliance with an agreement reached between the parties; and/or
• whether there has been any change in the nature of the dispute or the circumstances of the parties since the Assessor’s report (if any) was delivered.

Similar to the Assessor reports, DROs can also contain findings which can be produced as evidence in VCAT regarding the quality of the building works.  These results can then be taken into account when determining costs and damages.

If a builder fails to comply with a DRO, the DBDRV can direct an Assessor to check compliance, and if a violation has been determined, the DBDRV may issue a notice of breach of DRO (”Notice”).

Once a Notice is issued:

• the owner is entitled to terminate the contract and apply to VCAT for appropriate orders;
• the DBDRV must give written notice to the Victorian Building Authority of the issue of a Notice; and
• the DBDRV may recover the costs of an examination and report by an Assessor as a debt owed by the builder.

Alternatively, a builder can seek review of the Notice in VCAT.

Certificates

Similar to the operation of the Small Business Commissioner, the DBDRV may also issue a ”Certificate” at the end of an unsuccessful conciliation process which will allow the parties to lodge a claim in VCAT. 

The Certificate, however, may include a statement to the effect that a party did not participate in the conciliation process or did so in bad faith.  Such a statement can then lead to an adverse costs order being made against the unsuccessful party in VCAT.

What to do if you are in dispute with an owner?

If the dispute cannot be resolved directly with the owner, you should consider contacting MST Lawyers to obtain advice as to:

• whether you are eligible to refer the matter to the DBDRV as not all building disputes can be heard by the DBDRV;
• what alternatives and/or other options are available to resolve your dispute, and
• minimising your risk and/or liability during the period in which you are in dispute.

What to do if you receive a referral to the DBDRV?

If you receive a referral, you should consider contacting MST Lawyers to obtain legal advice as to:

• your rights and/or liabilities before you are required to attend conciliation;
• the type of evidence you will need to provide at conciliation; and
• your continuing obligations under the contract (as these will not automatically be stayed when a referral is made), particularly in relation to damages for late completion, payment of an instalment amount within a specified period and interest charges.

What if you are not happy with a DRO?

If you have completed the conciliation process and you are not satisfied with a DRO, you should consider contacting MST Lawyers immediately to seek legal advice as to:

• your rights of appeal; and
• your obligations/liabilities in the event you do not comply with a DRO.

You may seek review of a DRO both internally or at VCAT.  You will only have 20 business days to make an application to VCAT for review and only on the following grounds:

• the description of the work that is defective or incomplete is incorrect;
• the period for carrying out rectification or completion is not reasonable, or
• a requirement to take specific action or stop doing something is not necessary or is unreasonable.

Important lessons to take away

1. The ability to seek a review of any DRO issued by the DBDRV is limited, and builders are encouraged to seek legal advice immediately upon receipt of a referral to the DBDRV, so as not to become effectively barred from proceeding by the 20 business day rule.

2. The very nature of a building dispute may involve complex questions of law and technical building practice which a conciliator may not be qualified to provide advice on. Builders are encouraged to engage lawyers early in the process to ensure that they are fully informed of their legal rights and obligations and obtain information as to the likely outcome of a dispute.

3. Although the process is designed to be efficient and low-cost, it may not necessarily result in a favourable outcome for you, if you are not represented, or you do not obtain proper and adequate legal advice before reaching settlement. Therefore, understanding your rights and obligations as you undergo the conciliation process is essential.

4. In many cases, the parties may accept the terms of a DRO and move forward. If a party elects not to abide by the terms of a DRO, a Notice may be issued, and the parties can proceed to VCAT.  In this scenario, the existence of the DRO and its non-compliance is a factor that may be taken into account when awarding costs.  Of course, VCAT could seek to make entirely different orders to those in the DRO.

For more information on how MST Lawyers can assist you, please contact Sofia Lozanova from our Dispute Resolution and Litigation team by email or call +61 3 8540 0200.