New domestic building work disputes reforms for the Victorian building industry

Overview

From 26 April 2017 Victoria’s new reforms for domestic building work dispute resolution will “go live”. These reforms are a key element of the Victorian Government’s consumer protection building reform package, as set out in the Building Legislation Amendment (Consumer Protection) Act 2016 (Vic).  Many of the reforms in that Act commenced operation in 2016.  The reforms starting on 26 April 2017 provide for a new regime for domestic building dispute resolution. 

In this briefing note, we outline some key aspects of the new domestic building work dispute resolution reforms. Developers and major contractors in the domestic building industry will need to become familiar with the new reforms, to ensure they protect their financial position and building practitioner registration in the event of a domestic building work dispute.

The conciliation framework

There will be a new conciliation framework for domestic building disputes, to be administered by a new body to be known as Domestic Building Disputes Resolution Victoria. This framework will replace the conciliation of disputes and inspectors provisions in the Domestic Building Contracts Act 1995 (Vic), which are currently administered by Building Advice and Conciliation Victoria (BACV). 

From 26 April, in most cases parties will have to participate in a conciliation process before they can apply to VCAT or commence court action in relation to a domestic building work dispute. Parties will have to provide a certificate of conciliation from the chief dispute resolution officer with their application to VCAT.  The reforms do contemplate that conciliation may not be appropriate for every dispute, but a party wishing to proceed to VCAT will still need a certificate of conciliation assessing the matter as not suitable for conciliation.  Similar requirements apply before commencing court action, but parties also have the option of seeking leave of the court to bring the proceedings without a certificate of conciliation.  There is an exception for proceedings for injunctions, which can still be brought without a certificate of conciliation.

Parties will also need to participate in the conciliation conference in good faith. If they do not, this may be noted in the certificate of conciliation.  VCAT will usually be required to make an award of costs against an unsuccessful party in VCAT proceedings who refused to participate, or did not participate in good faith, in the conciliation conference.

A party wishing to refer a dispute to conciliation should first take reasonable steps to resolve the dispute. A dispute may be rejected as not suitable for conciliation if this has not been done.

The conciliation process will usually start with a conciliation conference, which may take place at the building site. If the conciliation successfully resolves the dispute, the conciliation officer will prepare a record of agreement.  If not, a certificate of conciliation will be issued.

As part of the conciliation process, the chief conciliation officer can issue a stop work notice requiring the builder to stop work for up to 30 days (with the potential to extend for up to a further 30 days) where appropriate (for example to preserve evidence relevant to the dispute). The period during which the stop work notice is in effect is not to be counted in the period for completion of the work under the domestic building contract and an extension of time will need to be granted accordingly.

The chief conciliation officer can also direct an assessor to inquire into a domestic building work dispute and report on whether domestic building work is defective, incomplete or non-compliant. Assessors will have powers to enter building sites, examine building work (including demolishing and cutting if reasonably required) and to require persons at the site to provide information, documents and assistance.  A party can be required to pay the assessor’s costs of inquiring and reporting, if they failed to participate in the conciliation conference and the building work is found to be defective or incomplete.  If assessors identify any contraventions of the Building Act 1993 (Vic) or any regulations under that Act they must also provide a copy of their report to the Victorian Building Authority (VBA), and may also notify the relevant council and relevant building surveyor.  An assessor’s report is admissible in evidence in any subsequent VCAT or other legal proceeding, and also in any disciplinary proceeding against a building practitioner.

Dispute resolution orders

The chief conciliation officer may also issue a dispute resolution order to a builder or building owner in relation to some types of disputes. This may require the builder to rectify defective work, rectify damage caused, or complete defective work, or require the building owner to pay money to the builder.  Helpfully for builders, the dispute resolution order may also contain conditions, for example that a building owner must not prevent or restrict the builder from carrying out the work, or that a building owner must pay money into a new fund, to be known as the Domestic Building Dispute Resolution Victoria Trust Fund. 

If a party fails to comply with a dispute resolution order, the chief conciliation officer may issue a “breach of dispute resolution order notice”.

Parties can apply to VCAT for review of decisions to issue dispute resolution orders and breach of dispute resolution order notices.

Builders and building owners will be entitled to end their domestic building contracts in some circumstances, for example where a builder has failed to comply with a dispute resolution order and a breach of dispute resolution order has been served and not challenged by the builder. Parties can then apply to VCAT for consequential orders. 

If a building practitioner has failed to comply with a dispute resolution order, this can be grounds for disciplinary action against the practitioner under the Building Act 1993 (Vic).  As mentioned above, assessors are required to notify the VBA directly of any non-compliance with the Building Act 1993 (Vic) or regulations, and this could also be grounds for disciplinary action against the practitioner. 

Impact of reforms

Consistent with the consumer protection focus of the reforms, the conciliation process will be available to subsequent building owners, even though they were not the party who entered into the domestic building contract with the builder.

The new conciliation process will play a much larger role in domestic building dispute resolution in Victoria then the current BACV process. The new powers of the chief conciliation officer will improve the ability of regulatory authorities to intervene on behalf of consumers and ensure that defective and incomplete building work is fixed.  We recommend that forms of domestic building contract also be updated to address the new grounds for extensions to the program and grounds of termination in particular (including to address the cost consequences of each occurrence).

For further details in relation to these reforms, please contact Grant Ahearn, Partner, on +61 (0)3 8686 6593, or Sefton Warner, Special Counsel on +61 (0)3 8686 6631. We would like to acknowledge the contribution of Kylie Lightman in preparing this legal update.