New South Wales Court of Appeal CITATION : Fair Trading Administration Corporation v Smith [2001] NSWCA 435 FILE NUMBER(S) : CA 41056/00 HEARING DATE(S) : 11 September 2001 JUDGMENT DATE : 28 November 2001 PARTIES : Fair Trading Administration Corporation v Anthony James Smith JUDGMENT OF : Priestley JA at 1; Powell JA at 26; Fitzgerald AJA at 27 LOWER COURT JURISDICTION : District Court LOWER COURT DC 8839/99 FILE NUMBER(S) : LOWER COURT Bowden ADCJ JUDICIAL OFFICER : COUNSEL : Appellant - D.L. Williams Respondent - M. Ashhurst SOLICITORS : Appellant - Abbott Tout Respondent - Conditis & Associates CATCHWORDS : Defective work by building company licensed under Building Services Corporation Act - claim against director of building company - struck out as unmaintanable Building Services Corporation Act 1989 LEGISLATION CITED : Building Services Corporation Legislation Amendment Act 1996 Building Services Corporation Regulation 1990 CASES CITED: Demore Constructions Pty Ltd v Garpace Constructions Pty Ltd [2001] NSWCA 350 DECISION : Dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41056/00 PRIESTLEY JA POWELL JA FITZGERALD AJA Wednesday, 28 November 2001 FAIR TRADING ADMINISTRATION CORPORATION v SMITH Fair Trading Administration Corporation brings action against both a building company licensed under Building Services Corporation Act 1989 and a director of that company to recover the sum paid by the Corporation to claimants under the Corporations Insurance Scheme because of defective work by the building company – claim against director struck out as unmaintainable in light of s 98 of the act – on application for leave to appeal by the corporation, held, leave granted, but on basis that on proper construction of s 98 Corporation could not succeed against director, appeal dismissed with costs. ORDERS Appeal dismissed with costs. 12 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 41056/00 PRIESTLEY JA POWELL JA FITZGERALD AJA Wednesday, 28 November 2001 FAIR TRADING ADMINISTRATION CORPORATION v SMITH 1 PRIESTLEY JA: Fair Trading Administration Corporation (the Corporation) brought an action as plaintiff against Anthony J Smith & Sons (ACN 001 273 749) as first defendant and Mr AJ Smith as second defendant in the District Court. Pursuant to notice of motion by Mr Smith, the action, as against him, was summarily struck out by Bowden ADCJ. The Corporation then sought leave to appeal against the strike out order. In the hearing of the leave application, this court heard argument going both to the application for leave and as on an appeal, so that if the court thought leave should be granted it would be in a position to deal with the appeal without further argument. 2 Although an affidavit by Mr Smith was filed in the District Court in support of his notice of motion, it seems that at the hearing of the motion, it was not read. It became common ground in this court that that was so with the result that in this court the affidavit could not be taken into account. Thus, the proceedings in the District Court became almost the exact equivalent of what used to be called a demurrer, and must be approached in the same way in this court. If the case is an appropriate one for leave, the question for this court will be whether Bowden ADCJ was right in upholding the demurrer. 3 The presently material parts of the Corporation's statement of claim were as follows: "1. The Plaintiff is a Body Corporate constituted pursuant to the Building Services Corporation Legislation Amendment Act 1996... and is entitled to sue. 2. Pursuant to the [Amendment] Act [1996] the rights and liabilities of the Building Services Corporation (the 'BSC') were transferred to the plaintiff. 3. At all material times the first defendant ('the Company') was a holder of a licence under the Building Services Corporation Act 1989. 4. At all material times the second defendant was a director of the Company and controlled and supervised the carrying out of the residential building work being done by the Company. 5. On about 2 August 1993 the Company contracted to carry out residential building work at 9 Clairvoux Road, Wamberal, NSW, for Mr and Mrs S ('the claimants'). 6. On about 24 May 1995 the claimants lodged a claim with the BSC pursuant to its Comprehensive Insurance Scheme ('the Scheme') in respect of the defective building work carried out by the Company under the supervision of the second defendant. 7. The BSC paid the sum of $76,308 to the claimants being the reasonable costs of rectifying the building work pursuant to the Scheme. 8. Pursuant to Section 98 (1) of the Act the Plaintiff is entitled to recover the sum of $76,308 from the Company. 9. In the alternative, the plaintiff is entitled to recover the amount of $76,308... from the second defendant as the person by whom the residential building work concerned was done...." (The amending act of 1996 introduced a different scheme -- although still with the same main purposes -- from that in the 1989 Act. The amendments put the Fair Trading Administration Corporation in place of the Building Services Corporation, with the same rights and liabilities. However, although the new name is in place, the court was assured by counsel that it was the scheme under the 1989 Act which was the relevant one in the present case. Counsel for the Corporation supplied the members of the court with copies of the 1989 Act, reprinted as at 8 August 1996, and the argument was conducted by reference to that as containing the relevant statutory provisions. I will refer to the 1989 Act as the Act) 4 Bowden ADCJ in his reasons for striking out paragraph 9, took the construction of s 98 of the Act to be the central question in the case. That section was as follows: "Recovery of amounts paid under schemes (1) Any amount paid by the Corporation under BSC Insurance may be recovered by the Corporation in a court of competent jurisdiction as a debt from the person by whom the residential building work concerned was done or contracted to be done. (2) If any such amount is paid because of defective materials or design work, the corporation is subrogated to the rights of any contractor concerned against the manufacturers or suppliers of the material or the designers of the defective design, but the Corporation may by written instrument waive, wholly or partly, its right of subrogation in a particular case. (3) If there is an unsatisfied judgment against the holder of a licence that was obtained by the Corporation pursuant to this section, the corporation may suspend the licence until the judgment is satisfied. (4) After considering the circumstances of the case, the corporation may decide: (a) not to attempt to recover an amount under this section, or (b) to accept any amount in satisfaction of its right to take recovery action under this section. (5) There is no appeal under this Act against suspension of a licence under this section." 5 Bowden ADCJ said he was of the view: "... that the meaning of S. 98 is that it refers to the licensed builder who was the contractor or if there was no contractor than the person who actually carried out the work and that is the person who physically did the work or was responsible for the carrying out of the work. In this case the person who was contracted to carry out the work was the first defendant. I think to me it is irrelevant that the first defendant's director and employee supervised the work on behalf of the person with the contract. The work was carried out by the builder, the builder being the first defendant. I see no room for anybody else down the line to have any liability under this section. There may be an argument that under the various statutes relating to the liability of directors or employees of companies that someone else might have a liability but it does not seem to me that they have it under this section. The regime here, it seems to me, is clearly to make the contractor liable and if there is no contractor, then the person who does the work. Here there was a contractor and I strike out par 9 of the statement of claim." 6 From the statement of claim itself, from the oral argument before Bowden ADCJ, (a copy of the transcript of which was supplied to this court) and from the last paragraph cited from Bowden ADCJ's reasons, it is clear that the Corporation's claim against Mr Smith was based on s 98. The argument for the Corporation in this court was put on the same basis. Thus no question arises in the case of any general law liability of Mr Smith to the Corporation. (I am not suggesting one way or the other whether there might be any such liability, I am simply making it clear that this court was not asked to consider any such question.) Subject to the question of leave, the only issue here is the construction of s 98. 7 The argument for the Corporation that the demurrer should fail began with the facts (a) that it was alleged in the statement of claim that Mr Smith was the person by whom the residential building work concerned was done (par 9) and (b) that section 98(1) said the amount paid by the Corporation "may be recovered ... from the person by whom the residential building work concerned was done or contracted to be done." It was then pointed out that in a number of places in the Act, a deliberate distinction appeared to have been drawn, as in section 98 (1) itself, between "work done" and "work contracted to be done". It was submitted that since no practical situations could be envisaged in which work would be done in the absence of some sort of contract, "work done" must refer to work done otherwise than by a licensed contractor. 8 I do not propose to set out and examine in detail all the examples in the Act of the "work done"/"work contracted to be done " formulation, because, having looked at the whole of the Act I think consideration of its Part 6, which is largely self-contained, is sufficient for understanding the meaning of section 98(1). 9 Part 6 of the Act is headed "BSC Insurance". It contains sections 90 to 103. Section 90 is as follows: "90. Application of Part (1) This Part: (a) in so far as it applies to residential building work, applies only to such work to the extent that it is done or to be done under a contract entered into on or after 21 March 1990 (the date of commencement of this section) or, if the work is not contracted, to the extent that it is commenced on or after that date, and (b) … (2) The time at which building work is to be taken to have been commenced is to be determined for the purposes of this section in accordance with the regulations. (3) … 91. Insurance schemes (1) The regulations may prescribe 2 insurance schemes to be known respectively as: (a) the BSC Comprehensive Insurance Scheme (which contains the conditions on which BSC comprehensive protection is to be provided), and (b) the BSC Special Insurance Scheme (which contains the terms and conditions on which BSC special protection is to be provided). (2) The schemes prescribed for the purposes of this Part are referred to in this Part as BSC Insurance. (3) The conditions of BSC Insurance must, in the case of each scheme, identify those having the benefit of the scheme but may also impose limits on, and exceptions from, the making or payment of claims. (4) The Corporation is to be the insurer under both schemes. 92. When comprehensive protection applied (1) BSC comprehensive protection applies in respect of residential building work if: (a) the holder of an appropriate licence contracted to do or did the work, and (b) the reasonable market cost of the labour and materials involved in the work exceeds $1,000 or, if the regulations prescribe a higher amount, the higher amount, and (c) the work is of a kind that requires approval under Part 1 of chapter 7 of the Local Government Act 1993, and (d) the work was not authorised to be done by an owner-builder permit. 2. BSC comprehensive protection also applies in respect of residential building work if the holder of an appropriate licence contracted to do or did the work and: (a) where the work was not authorised to be done by an owner-builder permit, if the appropriate prescribed premium has been paid, or (b) where the work was authorised to be done by an owner-builder permit, if the holder of the permit no longer has such an interest in the land as to be eligible for an owner-builder permit. And in such other circumstances as may be prescribed by the regulations. (3) … " 10 Section 93 provided for the application of BSC special protection in terms similar to those in section 92 concerning BSC comprehensive protection. 11 Section 94(1) made a licence holder guilty of an offence if the appropriate premium were not paid to the Corporation within 30 days after: "(a) the holder contracts to do residential building work to which BSC comprehensive protection applies (whether or not the work is to be done personally by the holder), all or (b) otherwise than under the contract, the holder commences to do any residential building work to which BSC comprehensive protection applies that the licence authorises the holder to do, or (c) … (d) … Maximum penalty: 20 penalty units" 12 Section 98 (see par 4) made it plain that the only amounts the Corporation was empowered to recover under the section were amounts paid under BSC Insurance. 13 Section 91(1) empowered the regulations to prescribe two insurance schemes to be known respectively as the BSC Comprehensive Insurance Scheme and the BSC Special Insurance Scheme. These were prescribed, along with much else in the Building Services Corporation Regulation 1990. The court was furnished with a copy of this Regulation by counsel for the Corporation in the form of the 21 October 1991 Reprint. It had been amended a number of times after that date before being substantially rewritten by the Building Services Corporation Amendment Regulation 1997. However, the court was told that the parts of the 1990 Regulation relevant to the present case were as they appeared in the 21 October 1991 Reprint. 14 Clause 33 of the 1990 Regulation said that for the purposes of Part 6 of the Act the BSC Comprehensive Insurance Scheme was prescribed in Form 4. Form 4 was in Schedule 1 to the Regulation. 15 Clause 1(1) of Form 4 included, among a number of definitions, a definition of "insured building work" as meaning "residential building work … contracted to be done, or done otherwise than under a contract, by the holder of an appropriate licence". 16 Clause 2 provided that the form 4 Scheme covered "insured building work contracted to be done or (if not done under contract) commenced" after a particular date. 17 Clause 4 defined who were beneficiaries in respect of residential building work in terms which included Mr and Mrs S in the present case. 18 Clause 5(1) described what losses reasonably incurred by a beneficiary in respect of residential building work would be indemnified under the Form 4 Scheme. These included losses in rectifying defects "in insured building work" due to bad workmanship. Clause 5(2) provided for the making of claims. 19 Subsequent clauses provided for the maximum payments which might be made in respect of claims (clause 6), the time limits within which beneficiaries must notify the Corporation of matters that could give rise to losses claimable under clause 5 (clause 7) and the way in which claims were to be assessed (clause 8). 20 Clause 8(1) listed six categories of amounts which the Corporation could set off against its liabilities under clause 5. Category (c) included any amount received by the beneficiary under a settlement with the contractor. Clause 8(2) listed a number of categories entitling the Corporation to decline to pay claims. One of these was where the beneficiary, without the Corporation's written approval, refused to allow the contractor to rectify defective work. 21 The statutory provisions set out or referred to above in my opinion make it clear that the words "was done" in s 98(1) referred to work done by the holder of the appropriate licence mentioned in s 92(1)(a), in the present case the first defendant against which the Corporation's action remains on foot. 22 As I do not see anything in the Form 4 Scheme which moves outside the Part 6 boundaries, it seems appropriate to interpret Part 6 and the Form 4 Scheme as an integrated whole, as their structure indicates they were. On this approach, I begin by taking s 98(1) as the first provision to look at, because the Corporation's case is based upon it. What the Corporation could recover under that subsection was any amount it had paid under BSC Insurance. Amounts could only be paid under BSC Insurance if the claim under that Insurance had been made under a Scheme authorized pursuant to s 91 and to which s 92 applied. One of the conditions for the application of s 92 was that the holder of an appropriate licence had contracted to do or had done the work. 23 The clauses of Form 4 referred to or quoted above show that the only claims which could be met under the Scheme were those arising from insured building work which was work by definition contracted to be done or done by the holder of an appropriate licence. For the Corporation, reliance was placed both on the argument I have already mentioned and references to provisions in Parts of the Act other than Pt 6. Although these arguments have some weight, that weight in my opinion is quite insufficient to overcome what seems to me to be the clear meaning of Pt 6 and the Schemes made under it. 24 The argument based on the idea recorded in the last sentence of par 6 above seems at first sight to be quite a strong one but is clearly negated by the terms of s 91(1)(a) as repeated in cl (1)(1) of Form 4. Precisely why the provisions make the distinction is not clear. Perhaps the meaning was to limit the word "contract" to a formal document complying with the Act, or at any rate a written contract. Whatever was intended, it is quite clear that Pt 6 contemplates a licensed contractor both contracting to do work (which carries with it both the obligation and the power to do the work) and doing work otherwise than under a contract. 25 From what I have said, it follows, in my opinion, that on the facts alleged in the statement of claim the Corporation could not make out a cause of action against Mr Smith under s 98 of the Act. In the circumstances I would favour the granting of leave to appeal, but would then dismiss the appeal, with costs. 26 POWELL JA: I agree with Priestley JA. 27 FITZGERALD JA: The circumstances giving rise to this application for leave to appeal are set out in the reasons for judgment of Priestley JA. Like his Honour, I will refer to the claimant as the Corporation. 28 As a result of the Building Services Corporation Legislation Amendment Act 1996, the Corporation is entitled to enforce any claim which its predecessor, the Building Services Corporation, had against Mr Smith under Part 6 of the Building Services Corporation Act 1989 (the "Act"). 29 Briefly stated, the Corporation's case is that it has a claim against Mr Smith under s98 of the Act because he physically performed defective residential building work which was carried out by his company under a contract to do that work. According to the Corporation, it is entitled to recover the amount paid which it paid under the statutory insurance scheme to the other party to the contract with Mr Smith's company from either Mr Smith or his company or both of them. 30 Section 98 entitles the Corporation to recover the amount which it has paid "as a debt from the person by whom the residential building work was done or contracted to be done". 31 The phrase "the person by whom the residential building work was done" is ambiguous. In DeMore Constructions Pty Ltd v Garpace Constructions Pty Ltd [2001] NSWCA 350, in which it was held that a subcontractor required a license to contract to do residential work, it was pointed out that a corporation does work which is performed on its behalf. The other members of the Court agreed with a judgment in which I said: "Broadly stated, the underlying premise is that any person may be authorised to contract to do work (see also ss4 and 19), but only a natural person may be authorised to do or supervise the work. However, that distinction is not clearly maintained. A licence authorising a person who is not an individual, eg a corporation, to contract to do work plainly contains authority to perform the contract and, in that sense, to do the work for which the contract provides although physically the work must be carried out by natural persons." 32 Consistently with that view, either Mr Smith or his company might be "the person by whom the residential building work was done" depending on the context. 33 Part 6 of the Act is not concerned with a distinction between the person who contracted to do work & the person who did the work the subject of the contract but with a distinction between work done under contract & work done without a contract. The latter distinction is drawn in, for example, ss. 90(1)(a),92(2), & 94(1)(a)&(b) of the Act & clauses 1(1) & 2 of Form 4 in the Schedule to the Building Services Corporation Regulation 1990. It is unnecessary for present purposes to speculate on the circumstances which the legislature considered might lead to residential building work being done without a contract. 34 When s 98 is interpreted in a statutory context which accepts that residential building work might be done without a contract, it is plain that the phrase "the person by whom the residential building work was done" is not related to a case like the present, in which there was a contract, but is directed to cases in which there was no contract. 35 I agree with Priestley JA that the Corporation's pleaded claim against Mr Smith must fail. 36 I also agree with the orders proposed by Priestley JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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