Changes to the resolution of domestic building disputes in Victoria

The Building Legislation Amendment (Consumer Protection) Act 2016 (BLA Act) will come into operation on 1July2017 changing the way domestic building disputes are handled under the Domestic Building Contracts Act 1995 (DBC Act).*

This article considers the changes to the DBC Act, as they apply to the resolution of domestic building disputes, the impact on domestic building contracts and some issues at the interface between these changes and the adjudication processes under the Building and Construction Industry Security of Payment Act 2002 (SOP Act).

What is the process under the current provisions of the domestic building contracts act?

Where a domestic building dispute arises,[1] the DBC Act currently provides a number of options to a party looking to resolve the dispute. Where the relevant party is the building owner, they may make a complaint to the Director of Consumer Affairs Victoria (CAV) who may refer the dispute to conciliation or institute proceedings in the Victorian Civil and Administrative Tribunal (VCAT) on behalf of the building owner. If the dispute is referred to conciliation, a conciliation officer is appointed to oversee discussions between the parties during a conference. Importantly, conciliation is currently an optional process and parties will not face any adverse consequences if they do not wish to participate. Alternatively, either party may ask the Victorian Building Authority (VBA) to appoint an inspector to examine the works and prepare a report which may be used in evidence in VCAT proceedings.

However, the most common approach is for one of the parties to make an application to determine the dispute to VCAT.

How will the process change?

The amendments in the BLA Act create a new and detailed framework which requires parties to a domestic building work dispute to engage in compulsory conciliation before being entitled to make an application to VCAT.[2] The amendments also provide for the establishment of Domestic Building Resolution Victoria (DBRV) and the appointment of a Chief Dispute Resolution Officer (CDRO) to administer the new framework. These changes are significant for a number of reasons.

Any party to the dispute may refer the dispute to conciliation

The new regime gives more options to parties involved in domestic building, as now builders, building practitioners, sub-contractors and architects (Building Contractors) can refer a domestic building work dispute with a building owner to the CDRO. Under the current regime only the building owner (the person for whom domestic building work is being carried out) has the power to refer the dispute to CAV.[3] In each of these cases, it is not necessary for a party to comply with a contractual dispute resolution process before referring the dispute.

Conciliation is a mandatory precondition to VCAT

Parties no longer have the right to make an immediate application to VCAT. While parties to a domestic building dispute will still be able to resolve a dispute between themselves using processes such as mediation, if a party wishes to have the matter heard at VCAT, the conciliation process administered by DBRV must first be complied with.[4]

Technically, the non-referring party will not be required to do anything during the initial stages of conciliation or to participate in a conference. However in practical terms, failure to participate will have a negative flow on effect. For example, it may influence a conciliation officer to issue an adverse Dispute Resolution Order (DRO) which may subsequently influence VCAT's decision whether to allow an appeal or impose costs against a party.[5]

The new conciliation process is more onerous

The conciliation process under the new regime is more onerous that the process under the existing regime:

• The time frames involved in the process are lengthy: A dispute may now be referred up to 10years after the occupancy permit or certificate of final inspection is issued or the date of practical completion or the date the contract was entered into, as the case may be.[6] Further, minimum periods of notice are imposed at different stages of the process (eg between receiving an assessor's report and issuing a DRO)[7] increasing the time taken to finalise conciliation.
• Parties have less control over the decision-making process: A party no longer has the power to request that the VBA appoint an inspector without first requesting conciliation. Now, any request that an assessor (who performs a similar function to an inspector) be appointed can only be made to the CDRO if a conciliation referral has been rejected or conciliation was not successful.[8]
• A non-participating party may be required to pay the costs of the Assessor's Report: Under the current regime the only cost to a party associated with the inspector preparing a report is the initial fee.[9] Under the new regime, a party that fails to participate in a conciliation conference and receives a DRO against them may be responsible for the costs of the assessor preparing the report (including any examination, test or advice).[10]

The powers granted to the CDRO and assessors are broader

The CDRO has the power to require the builder to stop work for a period initially not exceeding 30days,[11] which will have the effect of the builder receiving a statutory extension of time under the domestic building contract.[12]

The CRDO also has the power to issue DROs which may require, amongst other things, that a builder:

• rectify defective or damaged domestic building work;[13]
• complete domestic building work;[14]
• pay the reasonable costs of domestic building work to be carried out by another builder.[15]

A DRO may also require a building owner to:

• pay money into the Domestic Building Dispute Resolution Victoria Trust Fund;[16] or
• an amount to the builder for completion of the domestic building work.[17]

Unlike inspectors under the existing regime, assessors under the new regime have power to require invasive and destructive testing to facilitate an examination of the work.[18] Assessors also have power to require a person at a building site to give information to the assessor orally or in writing, to produce documents to the assessor or give assistance to the assessor.[19]

The consequences of a failure to comply with a DRO are more serious

If a person fails to comply with a DRO they will be issued with a breach of dispute resolution order notice which, if not appealed, will give the other party a statutory right to terminate the contract.[20]

Interface between the new regime in the amended DBC Act and the SOP Act

Two of the significant changes identified above create a potentially problematic interface between the amended DBC Act and the SOPA because:

• any party to the dispute may refer the dispute to conciliation; and
• conciliation is mandatory.

Any party to the dispute may refer the dispute to conciliation

As noted above, one of the significant changes under the new regime is that Building Contractors can now make use of the conciliation provisions. This is significant given that one of the key instances where a Building Contractor is likely to make use of the provisions is in circumstances where the Building Contractor alleges that the building owner has failed to pay money for domestic building work performed under the contract: exactly the scenario that is already contemplated and catered for in respect of construction contracts by the SOPA.

While the SOPA generally does not apply to a domestic building contract, it does apply where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with, that business.[21] As such, both the SOPA and the DBC Act apply to building contracts between developers who are building owners and Building Contractors. This means it catches many small, single block subdivisions and non-professional developers.

When the BLA Act changes come into effect from 1July2017 a Building Contractor will have two options where it alleges that the building owner has failed to pay money for domestic building work performed under the contract:

• it may refer the dispute to the CDRO under section45(1) of the DBC Act; or
• it may invoke the provisions of the SOPA.

While this is not ideal, on its own it is not too concerning. Given the quick timeframes for adjudication applications under the SOPA and the fact that it results in a binding outcome at the first step, it seems likely that this will be the preferred option.

Conciliation is mandatory

However, the more potentially significant aspect of the changes is the mandatory nature of the conciliation process under the new regime. The new regime means that in order to challenge an adjudication under the SOPA at VCAT, the building owner will first need to refer the dispute in respect of the adjudication finding to the CDRO and enliven the conciliation procedures under the DBC Act before initiating the review.

This will likely result in a cumbersome and protracted process when applying to review claims for payment under domestic building contracts between developers and Building Contractors as follows:

• SOPA adjudication,
• DBC Act conciliation; and then
• VCAT (assuming that the contract between the parties does not impose a further level of dispute resolution in the form of negotiation or mediation before a VCAT application may be brought).

In circumstances where the BLA Act has not expressly addressed this issue, it is to be hoped that in practice the CDRO will exercise its discretion and decide that a dispute is not suitable for conciliation in matters where a review is sought of adjudicated claims under the SOPA.[22] This will then mean that parties are not subject to the additional time and costs associated with conciliating a matter simply to obtain the right to make an application in VCAT.

* These provisions may come into effect earlier if an earlier date is proclaimed.

[1] See Domestic Building Contracts Act 1995 (Vic) s54 (DBC Act) for the definition of a domestic building dispute.

[2]Building Legislation Amendment (Consumer Protection) Act 2016 (Vic) s7 (BLA Act) which introduces a new section 56 to the DBC Act.

[3] DBC Act s43B(1).

[4] BLA Act s8 which introduces a new section 57A to the DBC Act.

[5] BLA Act ss6 and 7 which introduce new sections 46E(3) and 49A(1)(b) to the DBC Act; BLA Act s15 which introduces a new section 12B to the Victorian Civil and Administrative Tribunal Act 1998 (Vic).

[6] BLA Act s6 which introduces a new section 45(3) to the DBC Act.

[7] BLA Act s6 which introduces a new section 49(2) to the DBC Act.

[8] BLA Act s6 which introduces a new section 48C(1) to the DBC Act.

[9] Note that under both regimes, a party referring a matter to the investigator or assessor may be responsible for the costs of tests.

[10] BLA Act s6 which introduces new sections 48K to the DBC Act.

[11] BLA Act s6 which introduces a new section 47A(3) to the DBC Act.

[12] BLA Act s6 which introduces a new section 47C(4) to the DBC Act.

[13] BLA Act s6 which introduces a new section 49B(1)(a) and (b) to the DBC Act.

[14] BLA Act s6 which introduces a new section 49B(1)(c) to the DBC Act.

[15] BLA Act s6 which introduces a new section 49C(1)(c) to the DBC Act.

[16] BLA Act s6 which introduces a new section 49C(1)(b) to the DBC Act.

[17] BLA Act s6 which introduces a new section 49C(1)(a) to the DBC Act.

[18] BLA Act s6 which introduces new section 48E to the DBC Act.

[19] BLA Act s6 which introduces new section 48F to the DBC Act.

[20] BLA Act s6.

[21] Building and Construction Industry Security of Payment Act 1995 (Vic) s7(2)(b).

[22] BLA Act s6 which introduces a new section 45C(2) to the DBC Act.

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