Builders licensing requirements – who is a “fit and proper person”?

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Entry into various professions usually requires that a person be ‘fit and proper’, and that they be granted and continue to hold a licence or registration relevant to that profession.

An authority charged with the administration of a registration scheme or licensing scheme must be satisfied that an applicant is ‘fit and proper’ before granting the licence or registration.

Entering the building profession

The relevant certification authority will depend on the location of the builder’s work. Some examples are:

  • NSW Fair Trading, for licensing of builders and tradespersons in New South Wales;
  • Victorian Building Authority, for registration and licensing requirements for building and plumbing practitioners in Victoria; and
  • Queensland Building and Construction Commission, for  licensing in Queensland.

Although each jurisdiction has its own specific requirements, usually applicants must demonstrate that they firstly have the necessary qualifications, skills, knowledge and experience applicable for the registration or licence sought, and secondly that they satisfy certain probity conditions.

The requirement to be a fit and proper person not only applies to new applicants. It also extends to those wishing to maintain and renew their registration or licence.

How does an authority determine if an applicant is ‘fit and proper’?

The term ‘fit and proper’ is rarely defined in legislation. Rather, there are criteria and certain matters that an authority will consider, many of which relate to a person’s honesty, good character and integrity in commercial and other dealings. It is related to, but not the same as, being a person of good character.

In addition to providing evidence of relevant insurances, qualifications and experience, applicants are requested to disclose details of certain adverse or relevant matters. These are matters that may indicate that he or she is not a fit and proper to practise as a building practitioner. The disclosure of an adverse or relevant matter may trigger a request for further information or investigation.

Details of prescribed offences, convictions, licence or registration suspensions or disqualifications, and court or tribunal orders are amongst those matters investigated by an authority, as is the solvency of an individual or corporate entity.

Also relevant will be any examples of dishonesty or carelessness by the builder when dealing with the regulatory body itself. Even where there is no actual intention to deceive the authorities, failure to declare relevant information can lead to the regulatory body refusing the application. The authorities take a very dim view of builders who do not understand the regulatory regime and the importance of accuracy when dealing with it.

A failure to deal promptly with, or take seriously, customer complaints can also be relevant.

The fit and proper person requirement applies to individuals as well as directors of company entities seeking registration or licensing.

What is a relevant or adverse matter?

The following are common matters that must be disclosed, and will be considered, by an authority when determining if a person is fit and proper to enter (and remain in) the building profession:

  • the applicant’s criminal history and whether he or she has been convicted of an offence that involves fraud or dishonesty;
  • whether the applicant has had a licence or registration cancelled or suspended;
  • whether the applicant has been disqualified from managing a corporation;
  • whether the applicant is or has previously been bankrupt;
  • whether the applicant is or has previously been involved in the control of a corporate entity under administration or liquidation;
  • any previous breaches of the consumer law or contraventions of relevant building legislation and regulations;
  • the failure to disclose an adverse matter or the making of false or misleading representations in an application, which subsequently becomes known to the authority;
  • whether any court or tribunal orders have been made against the applicant;
  • whether the applicant has had an unreasonable number of complaints, penalty notices or cautions issued against him or her;
  • any disciplinary or legal action previously taken against the applicant by a regulatory body, authority or person; and
  • whether the applicant has previously been refused relevant insurance as a building practitioner.

Disclosure of an adverse or relevant matter does not necessarily mean that registration or licensing will not be granted. The authority will consider all matters, in all circumstances, and whether they establish a pattern of conduct that might deem the applicant does not have the appropriate standards to be considered a fit and proper person. The authority may also consider how recently the conduct took place as well as any relevant or mitigating circumstances. Further, it will assess whether the matters show that improper conduct in the future is likely.

The importance of disclosure – case study

It is important to disclose all information concerning a relevant or adverse matter when seeking registration with a building authority. Failing to do so can seriously jeopardise the application. Such was the case in Taouk v Director General, NSW Fair Trading [2016] NSWCATOD 41.

In this case the applicant was refused a contractor’s licence by NSW Fair Trading on the grounds that he did not meet the relevant industry experience required for the licence sought, and that he was not a ‘fit and proper person’ as required by the relevant legislation.

The applicant sought review by the NSW Civil and Administrative Tribunal.

There were various irregularities and omissions of relevant matters in the application, including a failure to disclose the applicant’s previous directorship of a liquidated company.

While satisfied that the applicant had ‘probably’ met the requirement of relevant experience for the licence sought, and that there was insufficient evidence showing that he was deceptive, the Tribunal nevertheless considered he was:

“…careless in his response to the application form questions that related to previous business difficulties and in regard to the accuracy of the information that he provided…

[The] discrepancies and irregularities and the applicant’s failure to declare his directorship of [the liquidated company] are consistent with the approach that he took in regard to his application. It is apparent from his evidence that he held the view that in order to obtain the licence he just needed to establish that he had two years’ building experience and that any other considerations were secondary … They show a cavalier attitude to the regulatory regime.”

The Tribunal pointed out the consumer protection purpose of the legislation, stating that being fit and proper “involves more than honesty and integrity, it involves knowledge and ability.”

The issues raised regarding the applicant’s honesty and his attitude to the regulatory requirements of the scheme led the Tribunal to believe that he did not demonstrate such knowledge and ability. The Tribunal confirmed that the licence should not be granted until such time as the applicant could satisfy the authority otherwise.

Conclusion

In addition to holding the relevant qualifications and experience, an applicant must be a fit and proper person to be granted registration or a licence in the building industry.

When seeking or renewing registration, applicants must ensure they provide full disclosure of any relevant or adverse matters, have a sound understanding of the regulations, and demonstrate the ability to properly deal with a regulator. Honesty and accuracy when dealing with the regulator are essential.

Applicants who are refused registration and licensing, or have their registration or a licence suspended or cancelled, for failure to meet the fit and proper person test may have a right to an internal review or appeal through the Tribunal of their state.

If you or someone you know wants more information or needs help or advice, please contact us on +61 (2) 9248 3450 or email [email protected].

I Fought the Law and I Won: construction contracts under SOPA

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The New South Wales Supreme Court has delivered a judgment on an issue vital to any construction project: what is a construction contract under the Security of Payment Act (SOP Act)?

The respondent in an adjudication convinced the judge not to follow previous judgments on this point, so it is important that those involved in building stay up to date with this issue.

As the decision was about the unique Security of Payment Act regime, it will not directly apply to situations outside of SOP Act claims.

The ruling targets situations in which there is some understanding between two parties that construction work is to be done in exchange for remuneration, but where there is no clear oral or written contract spelling out the terms.

These cases sit right at the borderline of what the law will enforce and will not enforce. We discuss the case, where it sits among other similar cases, and what we can learn from it.

Case facts

The dispute was between two groups:

  • Timecon Pty Ltd (Timecon) which was the claimant; and
  • The unincorporated joint venture between Lend Lease Engineering Pty Ltd and Bouygues Construction Australia Pty Ltd (LLBJV), which were the respondents.

LLBJV was the principal contractor for the NorthConnex Project, which was constructing two nine kilometre road tunnels linking the M1 to the M2. The project involved excavation and tunnelling, which produces waste known as Virgin Excavated Natural Material (VENM), or “spoil”.

Throughout the project, LLBJV stored 201,700 tonnes of spoil at a site in Somersby, NSW. The site was owned by a company that had the same sole director as Timecon.

Timecon claimed that it entered into a contract or arrangement with LLBJV, for LLBJV to store the waste generated at the NorthConnex project at the Somersby site. Timecon claimed that such an arrangement was for $4.00 per tonne of spoil.

LLBJV claimed that there was no “construction contract”, or else that it had deposited the spoil at the site pursuant to a contract with another party, Laison Earthmoving Pty Ltd (Laison). Laison had been managing the site at the time.

At first instance in adjudication, Timecon had won an adjudication determination in its favour to the tune of $887,532.80 (incl. GST).

In the NSW Supreme Court review of this determination, LLBJV’s main argument was that the adjudicator had no jurisdiction to hear the matter, as there was no “construction contract” between the parties.

Key issues

The key issue was the definition of “construction contract”. The issue is clear cut when there is a written document signed by both parties that are involved in the adjudication, with construction work or goods being the subject matter.

More complicated is the situation in which one party has given to another party some measure of assurance or indication (often only verbal) that it will pay for such goods or services. How do you draw the line between negotiation and a construction contract?

Under the SOP Act in NSW, a construction contract is defined as:

“a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party.” (emphasis added)

All States and Territories except Western Australia and Northern Territory use this or a very similar definition, so the decision has wide implications.

Ball J found that before any other SOP Act questions can be asked, every claimant must ask themselves: is the arrangement “a legally binding obligation by which the claimant is entitled to be paid by the respondent for the services the claimant undertakes to provide”? (emphasis added)

The key part here was that to be able to use the SOP Act, there had to be a “legally binding obligation” for the respondent to pay for the work.

This did not necessarily have to be a contract. Though there are not many other examples, one is estoppel which if proven prevents businesspeople from going back on their word, even where there is no actual contract.

For Ball J, the rationale was that if Security of Payment regime could be used even where there was no underlying legal obligation to pay, then in all cases the claimant would have to later return the sum awarded by the adjudicator. His Honour considered that this cannot have been the intention of the SOP Act. It would also be difficult for adjudicators to draw the line between what types of non-legally binding arrangements were to be enforced, and which ones were not.

Back to the case

It was up to Timecon to prove that a contract or other legally enforceable arrangement was in place.

LLBJV and Timecon had exchanged some contractual documents, including a document called “Heads of Agreement” and a draft agreement that was sent “for review”. Both had left the price section blank. Later, LLBJV had even sent an execution copy of an agreement, which Timecon had not signed and returned.

Timecon pointed to a meeting at the Somersby site between a few of the interested parties. During this meeting, the director of Timecon gave the LLBJV representative a Heads of Agreement with the rates left blank. Someone proposed trialling the tipping of 50,000 tonnes of spoil at $4 per tonne.

Unfortunately for Timecon, Ball J was not satisfied with the director of Timecon’s presentation as a witness, as he had failed to address important points in his written evidence and gave evasive answers in person. His version of the meeting was disbelieved.

Moreover, the conduct of the parties subsequent to this meeting was not consistent with there being a legally enforceable arrangement. The director of Timecon had later sent emails asking if LLBJV was still interested in tipping spoil to the site, there had been an unexplained time gap between when an unsigned contract was finalised and when the deliveries of spoil took place.

There was also an issue that Timecon should have known that LLBJV had engaged another party, Laison, to perform the work.

As a separate issue, the tipping of spoil at the site was not construction work. Nor was it supply of related services, as it was not integral to construction work at the NorthConnex project. It was also not a “good”, as it was not a component of the relevant building, structure or work, and was not used in connection with carrying out construction work.

The decision of the adjudicator was void. Timecon walked away with nothing.

Conflicting authority

Unfortunately, this issue of what is a “construction contract” is not done and dusted. We may not know definitively how courts treat this issue until a Court of Appeal rules on this question.

This is because there have been three previous judgments that went the opposite direction and found that an arrangement that is not legally enforceable can still be the subject of adjudication.

Ball J acknowledged these cases, but did not consider them to be “binding”. His Honour’s interpretation was that these cases in fact concerned arrangements that were legal obligations. To the extent that they spoke to hypothetical situations, they were persuasive but not binding.

Upshots

One thing is common to all of these cases. They address the difficult situation in which Party A has made assurances or indications of some description to Party B that it will be paid, but there is no contract. This situation is right at the borders of when the SOP Act can be used and when it cannot be used.

The conflict in authority will make it difficult to predict how cases in the near future will end up. However, regardless of how the law is ultimately decided, there are a number of things that developers and builders can learn from Timecon v Lendlease Engineering to avoid being in this grey area.

The first regret of Timecon will be assuming that contractual documents will be “sorted” down the line. It had a chance to sign and return the contractual documents but failed to do so. This was apparently because it still had to test the capacities of the site to take spoil. However, this non-response led LLBJV to look elsewhere and no contract was signed.

Timecon’s failure to seal the deal or at least keep negotiations going was largely why it did not get the result it wanted. Do not let the agreement or understanding lapse and make it binding as soon as possible.

Further, Timecon should have documented everything. Numerous times, Ball J preferred LLBJV’s version of events thanks to other evidence corroborating their account. In other cases, where claimants have written records of their meetings with respondents, or contemporaneous emails that are consistent with their story, they have been able to convince judges that representations had been made to them about payment.

Being scrupulous about these will ensure that builders and contractors avoid the expensive and difficult-to-predict process of litigation.

If you or someone you know wants more information or needs help or advice, please contact us on +61 (2) 9248 3450 or email [email protected].

Errors in Security of Payment: does one bad apple spoil the barrel?

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The Security of Payment regime is infamously inflexible and technical, demanding that parties and their lawyers adhere rigidly to the rules and procedure set out by the Security of Payment Act (SOP Act). The neglect of seemingly small details has led to entire adjudications being voided for lack of jurisdiction or for denial of procedural fairness.

In Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Limited [2019] NSWSC 755, the Supreme Court of NSW was asked at what point will clerical errors lead to a judgment being quashed for want of natural justice and procedural fairness.

This case lends itself to the position that a respondent cannot challenge an adjudicator’s determination for denial of natural justice unless the circumstance in question is substantial enough to effect to the outcome of the determination.

In exercising their discretion as to whether natural justice has been denied, the Court will apply an assessment of reasonableness. In deciding on any relief, the Court may also determine that part of the determination that is affected by error can be severed from the part that is not.

Facts

Rhomberg Rail Australia (Rhomberg) engaged Concrete Evidence (Concrete) under a subcontract to lay reinforced concrete for the track slab in connection with a light rail project in Newcastle. The Contract Sum for the works was $3,146,278.36 (excluding GST). During the term, Concrete lodged and adjudication application for $1,061,800.61 (the balance owing under the subcontract and in respect of 119 variations), in which Concrete referred to a register of variations as being enclosed under Tab 7 of the application.

By way of clerical error, Tab 7 was incomplete, such that every other page was missing, resulting in reference to some variations being omitted. However, Tab 8 housed supporting documents in respect of all variations in the register under Tab 7, including for those variations omitted by clerical error under Tab 7. The submissions in Concrete’s application referred to some variations omitted in Tab 7. Both Rhomberg and the Adjudicator received copies of the application with the same clerical error.

Rhomberg served its adjudication response and stated in its submissions that “given the Claimant’s withdrawal of all variations which do not appear in Tab 7, the Respondent has not addressed those variations in this Adjudication Response.”

The Adjudicator, in providing his determination, said “the Respondent considers that the variations not shown in tab 7 have been withdrawn by the Claimant. I do not agree. The adjudication application is to be read as a whole including the amounts included in the payment claim, those disputed in the payment schedule and the submissions made.”

Rhomberg disputed the determination on the grounds that the Adjudicator denied it procedural fairness because the Adjudicator dealt with variations without giving Rhomberg an opportunity to make submissions in relation to them.

Judgment

Ball J found that there was no substantive denial of procedural fairness in respect of the omitted variations.

His Honour determined that in order to ascertain whether Rhomberg had been denied procedural fairness, the assessment would fall to whether Rhomberg ought reasonably to have concluded that Tab 7 was incomplete and that the adjudicator might deal with all the claims set out in Tab 8.

At [20], Ball J stated:

“In my opinion, a person acting reasonably would at least have appreciated that there was an inconsistency between Tab 7 and Tab 8 and therefore appreciated that there was at least a risk that the Adjudicator would proceed with his adjudication by reference to Tab 8 rather than Tab 7. That conclusion is reinforced by the fact that some of [Concrete’s] submissions specifically included references to variations that were not referred to in the Tab 7 schedule. It follows that [Rhomberg] ought reasonably to have appreciated that the Adjudicator might deal with all the Tab 8 variations. That is what the Adjudicator did. Consequently, [Rhomberg] was not denied procedural fairness.” (emphasis added)

Further, His Honour reasoned that the evidence to which Rhomberg argued it had no knowledge of, were the very variations that had been the subject of previous claims and correspondence between the parties, which “must be understood as referring back to what had previously been said in relation to those variations.”

To the question of whether Concrete was entitled to recover in respect of those variations omitted under Tab 7, Ball J at [25] said, reserving Rhomberg’s rights on appeal:

“[T]he adjudication determination should be set aside only to the extent that the Adjudicator determined that [Concrete] was entitled to recover in respect of variations on which [Rhomberg] was not invited to make submissions on and on which it could have made submissions consistently with s 20(2B) of the SOP Act.” (emphasis added)

His Honour found for Concrete, agreeing with their submissions, that Rhomberg was not denied procedural fairness because:

  1. it was evidenced that the Adjudicator might proceed to deal with the claims referred to in Tab 8;
  2. any denial of procedural fairness was not substantial as there were no further submissions of substance that Rhomberg could have made; and
  3. if there was a denial of procedural fairness, it did not affect the whole determination and Concrete should be entitled to recover the unaffected portion of its claim.

Commentary

The New South Wales Courts seem to be moving towards a more practicable position in their application of the SOP Act and in exercising their discretion on denial of natural justice considerations. Though other jurisdictions maintain a far stricter interpretation of the requirements of the SOP Act (see Niclin Constructions Pty Ltd v SHA Premier Constructions Pty Ltd & Anor [2019] QSC 91; Conveyor & General Engineering Pty Ltd v Basetec Services Pty Ltd and Anor [2014] QSC 30), the approach in New South Wales appears to prioritise the merits of a matter over strict statutory compliance.

There are two key takeaways from this decision:

  1. a denial of natural justice, of which a denial of procedural fairness is a species, may give rise to jurisdictional error on the part of an adjudicator to determine a payment claim under the SOP Act, in circumstances where a party could not reasonably have anticipated that either the adjudicator or the other party would rely upon the issue or principle concerned; and
  2. the generally accepted position in Fulton Hogan Construction Pty Ltd v Cockram Construction Ltd [2018] NSWSC 264, that the effect of a jurisdictional error will render a determination void, on the basis that a determination is a single determination of a single payment claim, is no longer the favored position in New South Wales. Following the position in the Court of Appeal in YTO Construction Pty Ltd v Innovative Civil Pty Ltd [2019] NSWCA 110, Ball J found that part of a determination affected by error can be severed from that part that is not so affected.

It would be an interesting exercise to consider what the Court’s position would have been had the clerical error only affected Rhomberg’s copy of the adjudication application and not the adjudicator’s (see section 17(5) SOP Act), and whether such a difference would amount to a denial of natural justice and lend itself to the same conclusions.

If you or someone you know wants more information or needs help or advice, please contact us on +61 (2) 9248 3450 or email [email protected].