Competing Constructions? Commencing “statutory warranty” claims against domestic builders

Introduction

The District Court and the Federal Court have divided in two respects in relation to the Building?Work Contractors Act 1995 (SA).?The first is whether it confers “exclusive jurisdiction” on the Magistrates Court to determine claims brought under Part 5 (ss?27 to 40) where the quantum is under $100K.?The second is whether, in any event, it requires all such actions (irrespective?of?quantum) to be commenced in the Magistrates Court.?

This article briefly examines the respective Courts’ differing approaches to Part 5, and, in light of the above, some of the practical implications for litigation strategy, and potential reform.?

The legislative regime

The critically relevant provisions of Part 5 are in ss 32(2), 37(2)-(4) and 40(1).?

Section 32(2) implies certain “statutory warranties” into contracts for “domestic building work”.?They are that:

·???????????the building work will be performed in a proper manner to accepted trade standards and in accordance with the plans and specifications agreed to by the parties (s 32(2)(a)).

·???????????all building materials to be supplied by the contractor for use in the building work will be good and proper (s 32(2)(b)).

·???????????the building work will be performed in accordance with all statutory requirements (s?32(2)(c)).

·???????????if the contract does not stipulate a period within which the building work must be completed, a warranty that the building work will be performed with reasonable diligence (s 32(2)(d)).

·???????????if the domestic building work is for construction of a house, a warranty that the house will be reasonably fit for human habitation (s 32(2)(e)).?

In turn, s?37 deals with claims for relief in connection with the statutory warranties in s 32(2) in three relevant respects.?First, s 37(2) provides that a party who is entitled to the benefit of a statutory warranty “may apply to the Magistrates Court”.?Secondly, s?37(3) provides that an application may not be made under?s 37(2)?in respect of a dispute arising out of a domestic building work contract unless the dispute involves “some question of whether building work has been performed in accordance with the contract”. Thirdly, s 37(4) provides that if an application is made under s?37(2) in respect of a dispute arising out of a domestic building work contract, an “application may be made to the Magistrates Court” for determination of the dispute.?

Further, s 40(1) provides that if the proceedings involve a monetary claim for, or remedial work the value of which exceeds, $100K, the Magistrates Court must on application refer the proceedings to the District Court.?

The competing constructions

The cases to date that most clearly expose the judicial disagreement that has developed in relation to Part 5 are Cirocco Constructions Pty Ltd v Clarke[1] and Duthy Homes Pty Ltd v Tincknell & Tincknell[2] in the District Court on the one hand, and Janbar Pty Ltd v Arbocrest Pty Ltd[3] in the Federal Court on the other.?

As demonstrated below, the cases are difficult, if not impossible, to reconcile, and it is easy to see that the existence of alternate views could provide an opportunity for major disputation about forum and challenges to jurisdiction, making the regime and proceedings far less efficient, and more costly, than they otherwise could be.?

Cirocco – 2015

In Cirocco, the Court had to decide an application for summary judgment.?The relevant part of the argument distilled to the question “whether the Act confers exclusive jurisdiction over disputes arising under Part 5 of the Act on the Magistrates?Court”.?

The Court’s ultimate answer was that “exclusive jurisdiction is conferred on the Magistrates Court with respect to claims for relief in disputes involving some question of whether building work has been performed in accordance with the contract.”?The Court’s central reasoning toward that conclusion is more fully extracted below (underlining added):

[15]?A closer examination of the subject provisions, expose a degree of ambiguity in divining the legislative intent. Parliament has not said in so many words that the jurisdiction conferred on the Magistrates Court by?s 37?of the?Building Work Contractors Act?is exclusive. On the contrary, the use of the expression ‘may apply’ in?s 37(2)?suggests a permissive or facultative construction:?Acts Interpretation Act 1995?(SA) s 34.

[16]?At first sight the jurisdiction so conferred by s 37(2), covers any dispute arising out of domestic building contracts. In the case at hand the claim for progress payments is said to give rise to an action in ‘pure debt’, outside the ambit of the?Building Work Contractors Act. Such a description is however capable of falling within the ambit of a ‘monetary claim for an amount exceeding $100,000’, within the meaning of?s 40(1)(a)?thereof. There is no escaping the fact that whether such debts have fallen due and payable in the instant case, depends on the outcome of a dispute between the parties as to the proper interpretation of the subject contract. As a matter of plain English, it is clearly ‘a dispute arising out of the contract’, described in?s 37(2).

[17]?Even so,?s 37(3)?of the?Building Work Contractors Act?prohibits in so many words, applications under?s 37(2), other than those involving ‘... some question of whether building work has been performed in accordance with the contract’. The claim by the builder (plaintiff) in the present action does not fit that description. The effect of?s 37(3)?therefore, is to significantly qualify the ambit of?s 37(2)?so that it must be read down to conform with it.

[18]?Hence, it may be deduced that Parliament intended questions of performance and statutory warranty enforcement ‘for relief in the nature of an order to carry out work’, to fall within the initial jurisdiction of the Magistrates Court when invoked, whereas questions of the pure construction of building contracts, or the enforcement of monetary claims thereunder unconnected to statutory relief claims, remain with the ordinary civil courts, according to their jurisdictional limits. The same considerations apply with respect to sub contractors pursuant to?s 37(4).

[28]?It follows from the evident objectives and purposes of the?Building Work Contractors Act,?coupled with the structure and jurisdictional constraints contained in the?Magistrates Court Act,?that the effect of?s 37?of the?Building Work Contractors Act?is to vest concurrent jurisdiction in proceedings for monetary claims under domestic building work contracts in the general courts exercising civil jurisdiction, but that exclusive jurisdiction is conferred on the Magistrates Court with respect to claims for relief in disputes involving ‘some question of whether building work has been performed in accordance with the contract’.?

The qualification “some question of whether building work has been performed in accordance with the contract” from s 37(2) referred to in paragraph [28] of Cirocco appears to expressly engage the statutory warranty in s 32(2)(a) to the effect that (underlining added) “the building work will be performed in a proper manner to accepted trade standards and in accordance with the plans and specifications agreed to by the parties”.?

However, as matter of inference, it may well be implicit that the qualification in s?37(2) encompasses all of the statutory warranties insofar as they all have force as “implied terms” (s?32(2)).?

In any event, the Court concluded that because the specific claim before it did not involve a “question of whether domestic building work had been performed in accordance with the domestic building work contract”, it followed that s 37(3) (referred to above) precluded the claim being made under s?37(2).[5]?

Duthy – 2017

Cirocco was briefly referred to with at least tacit approval, but without any substantive discussion, in Duthy.[6]?In the course of the reasons, the trial judge adverted to the issue by saying (underlining added):

“See Cirocco Constructions Pty Ltd v Clarke?[2015] SADC 98.?The exclusive jurisdiction to commence proceedings in relation to the Building Work Contractors Act is in the Magistrates?Court. […].”

Janbar – 2020

At the time that Cirocco and Duthy were decided, Janbar had not yet been handed down.?

In Janbar, the Federal Court had to determine whether it had jurisdiction to grant relief under Part 5.?In holding that it did have jurisdiction, it took a much more expansive approach.?In that case remedies were sought on the basis of the contract, and also under the Australian Consumer Law on the basis of misleading or deceptive conduct.?The reasons were relevantly as follows (underlining added):

[299]?If the Parliament of South Australia had intended that the jurisdiction of the Magistrates Court (other than in the circumstances to which?s 40?refers) should be exclusive, it would have been easy for it to have said so. Instead,?s 37(2)?provides only that an application “may” be made to the Magistrates Court: not that it “must” be made to that Court.

[300]?The qualification imposed by?s 37(3)?that an application may not be made to the Magistrates Court under?s 37(2)?unless the dispute involves some question of whether building work has been performed in accordance with the contract cannot reasonably be understood as a legislative statement that, when the dispute does involve some question of whether building work has been performed in accordance with the contract, it can?only?be litigated in the Magistrates Court. Such a construction is to turn the provision on its head.

[301]?In my respectful opinion,?s 37?contemplates that a party to a domestic building contract who wishes to have determined a dispute concerning the performance of the building work to which a statutory warranty relates?may?commence proceedings in the Magistrates Court. When that occurs, the Magistrates Court will then (in the absence of an election under s 3(4) of the MC Act) apply to the resolution of the dispute the quick, informal and efficacious means for the determination of disputes for which s 38 provides. It may also exercise the powers for which s 37(6) provides. That may be particularly advantageous at a time when work under the contract remains to be performed. I am, however, unable to see any indication that the jurisdiction of the District Court or, for that matter, of the Supreme Court of South Australia in an appropriate case, is excluded. On the contrary, it may be thought unlikely that the Parliament in South Australia intended such a consequence given that domestic building disputes are often multi?faceted and can involve, in addition to claims relating to the statutory warranties, disputes arising from other contractual provisions. It should also be taken that the Parliament understood that the disputes arising from domestic building work contracts may involve amounts in excess of $100,000. It should not readily be taken to have intended that, when that was so, the applicant still had to commence proceedings in the Magistrates Court but with the expectation that they would be transferred to the District Court under s 40.

[303]?However, even if that be incorrect, an exclusive jurisdiction provision in the legislation of a State Parliament is not conclusive of this Court’s jurisdiction. It is not within the legislative competence of the Parliament of South Australia to confine the jurisdiction of this Court.

[304]?The jurisdiction of this Court derives from?s 39B?of the?Judiciary Act 1903?(Cth) and from?s 19?of the?Federal Court of Australia Act 1976?(Cth). Section 39B(1A) provides (relevantly):

The original jurisdiction of the Federal Court of Australia also includes jurisdiction in any matter:

(c)?????arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter.

[312]?The justiciable controversy in the present case concerns the creation of, and performance of work under (and in relation to), the contract between Arborcrest and the applicants. In the contractual part of their claim, the applicants pleaded contractual terms of three kinds. It would be artificial to distinguish between those contractual terms which are said to arise from the parties’ own agreement and those said to arise from statute. It would also be artificial to distinguish that part of the applicants’ claim arising under the misleading or deceptive conduct provisions in the ACL from those concerning the contract claims. In each case, the controversy involves what was said and done in the pre?contractual discussions.

[313]?It is to be remembered that s 32 implies warranties into every domestic building work contract. It may be taken that in enacting that provision, the Parliament of South Australia intended that, in addition to the powers bestowed by s 37(6)-(9), the usual range of remedies provided by the law for the enforcement of contracts, and for their breach, should be available. That is to say, the Parliament did not create new rights of a distinctive kind which were dependent for their enforcement solely on the provisions in the same statute. The rights which the Magistrates Court enforces on an application to it are not?sui generis, or uniquely statutory in origin. They are the rights for which the common law provides with respect to contractual warranties, even though the warranties were implied into the parties’ contract by statute independently of the parties’ agreement.

[314]?When this is understood, the provisions in s 37 cannot be regarded as an intrinsic part of the rights created by s 32 with the consequence that those rights do not exist independently of s 37.

[315]?Moreover, acceptance of the respondents’ submissions would have the consequence that, if the applicants had commenced their proceedings in the District Court of South Australia, it would have been required to hold that it had no jurisdiction unless and until proceedings were commenced in the Magistrates Court and then transferred to it pursuant to s 40 of the BWC Act. Such a conclusion would be absurd.

[316]?These matters are sufficient by themselves to indicate that the rights and liabilities established by s 32 of the BWC Act may form part of the same matter for the purposes of?s 39B(1A)(c)?of the?Judiciary Act.

[317]?The respondents’ challenge to this Court exercising jurisdiction with respect to the BWC Act warranties fails.

In light of the above, and paragraphs [301], [303], and [315] of Janbar in particular, the position would appear to be two-fold: not only does the Magistrates Court lack exclusive jurisdiction (contrary to Cirocco and Duthy: the?first?point), the Courts of the State of South Australia also lack exclusive jurisdiction (the?second point).

As at the date of this article, Janbar does not appear to have been considered by any subsequent decision, and, having regard to Cirocco and Duthy, may be argued to be the minority view. ?With respect, however, as the decision of a more senior Court, and based on reasoning that was necessary to dispose of the jurisdiction/forum point at a trial rather than at interlocutory level (as in Cirocco), or cited in passing (as in Duthy), it appears to be appropriate to accord it comparatively more weight.?It may also be applied for reasons of comity.?

Implications

In view of the competing constructions explained above, it is submitted that the following practical implications for litigation strategy and potential reform arise:?

·???????????assuming that there is no “need” to commence actions claiming at least $100K in the Magistrates Court, only for them to be transferred “on application” to the District Court, cases could be filed elsewhere, saving the litigants (and the Court) the “double-handling”, time and expense involved in the s?40(1) transfer procedure.?

·???????????given the obvious inefficiency generated by requiring an apparently unnecessary step in the course of litigation, it may be that there is utility in the South Australian Parliament clarifying the position by amending the Act.?

·???????????however, those considerations may be redundant in that, applying Janbar, it?may be that plaintiffs can make a forensic choice to avoid the situation entirely, and have their allegations under for relief under Part?5 determined by and according to the rules and procedures of the Federal Court, and the Courts?of Appeal from that Court, rather than the State Courts.

·???????????thus, insofar as the Federal Court is of the independent view that its original jurisdiction does extend to claims for breach of statutory warranties (irrespective of their quantum, and despite Cirocco and Duthy) the more restrictive approach of the District Court may, in practice, matter very little.?

·???????????that said, whether or not Janbar extends to Commonwealth Courts other than the Federal Court (i.e., the Federal Circuit and Family Court) is doubtful, for two reasons.?First, s?251(1)(c) of the Federal?Circuit and Family Court of Australia Act 2021 (Cth) provides that that Court “has original jurisdiction as is conferred on the Court, or in respect of which proceedings may be instituted in the Court, by any other Act”.?Secondly, the Building Work Contractors Act confers no such jurisdiction on the Federal Circuit and Family Court.?Consequently, the ability for plaintiffs to bring litigation that seeks remedies under Part 5 outside of the State?Courts may, in reality, be limited to the Federal?Court, which might be perceived as a less attractive alternative to the State Courts than the Federal Circuit and Family Court.

Conclusion

Subject to further developments, litigants would be well advised to consider where to commence proceedings, and, in any event, whether the ratio in Janbar may supply a complete answer to points taken about matters of procedure based on Cirocco and Duthy.?It may also be there is an attempt to argue that Janbar stands differently because the relief was primarily sought and the jurisdiction of the Court engaged under Australian Consumer Law, such that the claim under the contract and Part 5 was anterior to it – the claim was not only under the Act.?

[1] [2015] SADC 98 (Tilmouth DCJ).

[2] [2017] SADC 133 (Tracey DCJ).?

[3] [2020] FCA 1519 (White J).

[4] [2015] SADC 98, [12] (Tilmouth DCJ).

[5] [2015] SADC 98, [28] (Tilmouth DCJ).

[6] [2017] SADC 133, [112, fn 66] (Tracey DCJ).??