People often get surprised when I tell them that they can't automatically recover compensation from a builder just because that builder has departed from the plans and specifications in the building contract. They get even more surprised when I tell them that departures from applicable Australian Standards and Building Codes are still not enough to get you an award of compensation. Even a failure by a builder to complete building works in a "proper and workmanlike manner" (as the now repealed Builders' Registration Act 1939 required) or in a "proper and proficient" manner (as the new Building Services (Complaint Resolution and Administration) Act 2011 now requires) or in a manner that is not "faulty or unsatisfactory" (as both Acts require) will not necessarily get you compensated.
So what does a consumer of building services have to prove in order to be compensated for building services which are not of a standard that they are entitled to expect, either under the contract or the relevant building legislation or the Australian Standards and Building Codes? The answer, in a word, is loss.
Broadly speaking, there are two classes of consumer protection laws in both the old and the new building regimes in WA and they each have a different purpose. One set of laws generally aims to compensate people who have suffered a loss as a result of some deficiency or defect in the services provided by builders under the repealed legislation or by any member of a broader class of building service providers under the current legislation. The other set of laws aims to impose penalties on, or empower certain government agencies to take disciplinary action against, builders who breach the requirements imposed on them by law, even if there are no resulting losses.
The old and new regimes may be different in terms of how deficiencies or defects in workmanship are defined, the classes of building service provider who may be held responsible for such deficiencies or defects and the agencies that administer the law. But this general distinction between laws that compensate consumers and laws that punish builders still applies. And the laws that compensate consumers generally only apply where a deficiency or defect in building work has caused a loss.
Under the new building regime, there appears to be an increase in the scope of losses that can be compensated. Whilst the scope of the compensation provisions in the new law has not yet been precisely defined by the courts, I expect that compensation will be available at least for:
- the cost of any remediation or restoration works required to rectify the defects;
- for defects which cannot be rectified in a cost-effective manner, any diminution in the market value of a property adversely affected by workmanship defects; and
- credits for expenses saved by builders in performing the works in a way which was cheaper than the amount it would have cost to adhere to the plans and specifications.
The entitlement to credits for saved expenses warrants further discussion. Where a builder saves money by cutting corners, the finished product may be just as good as it would have been in the event of strict adherence to the requirements of the contract. Strictly speaking, then, it is inaccurate to speak of credits in terms of compensation as there may not be anything to compensate the consumer for where the builder has cut corners.
Rather, the right to a credit (or put differently, a discount off the contract price) arises from the fact that the consumer did not get what they paid for. Where the relevant building contract is a lump sum contract, this may mean that the builder has not "earned" any part of the lump sum contract price at all: see Sumpter v Hedges [1898] 1 QB 673. In that event, it may be that the builder is only entitled to be paid an amount representing the "fair value" of the works actually performed (which is generally assessed as the base cost of labour and material supplied plus a 10% overhead and profit component: see Sopov v Kane Constructions Pty Ltd (No. 2) [2009] VSCA 141).
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.