Queensland Building Services Authority v Samimi & another [2021] QDC 112

by David Pearce, James Knell, Tia Shadford

Key takeouts

The Queensland Building Services Authority (QBSA) (now the Queensland Building and Construction Commission – QBCC) was prevented from recovering a payment under the Queensland Home Warranty Scheme, where it was found that the claimant failed to act in accordance with an implied duty of good faith when dealing with a builder and had unlawfully repudiated a contract. 

The significance of this decision is that:

• A court has demonstrated that it is prepared to read into a domestic building contract an implied duty of good faith and fair dealing.
• The QBSA / QBCC will be prevented from recovering payments made under the statutory insurance scheme provided by the Queensland Building and Construction Commission Act 1991 (Qld) (Act), where the builder in question has a genuine defence to the claim made against it.

Facts

In 2006, Mehran Pty Ltd (Mehran) engaged Spectrum Pty Ltd (Spectrum) to undertake domestic building works for the construction of two residential dwellings (contract). Spectrum carried out building works between May 2006 and March 2007.  Mehran alleged that the works undertaken by Spectrum were defective and that Spectrum had suspended the works and left them incomplete.

In July 2007, Mehran lodged a claim with the QBSA, seeking payment under the Queensland Home Warranty Scheme regarding the defective and incomplete works. Following this, in August 2007, Mehran issued a notice of termination to Spectrum for its failure to remedy alleged breaches and suspended the works under the contract. The first defendant, Spectrum’s director Karen Samimi (Samimi), argued that Mehran’s notice of termination was invalid and was a repudiation of the contract. Samimi caused Spectrum to issue its own termination notice to Mehran.

Under the Queensland Home Warranty Scheme, the QBSA paid $400,000 to Mehran in satisfaction of its claim. Having paid this amount, the QBSA issued a letter of demand to Samimi and the second defendant, Mojgan Samimi (also a director of Spectrum) seeking re-payment.

The QBSA then initiated proceedings against the Samimis to recover the $400,000 as a debt, under sections 71 and 111C of the Act.  These provisions allow the QBSA to recover any payment made under the statutory insurance scheme from the building contractor who carried out the relevant residential construction work.

The court considered a number of matters as part of this proceeding:

• whether Spectrum’s suspension of works was unlawful, where Mehran had breached an implied term of the contract by not giving proper instructions for building works to proceed;
• whether the works carried out by Spectrum were defective and incomplete; and
• whether Mehran was entitled to terminate the contract as a result of Spectrum’s suspension of the works, or for carrying out defective and incomplete works.

Decision

QBSA’s claims were dismissed and the court held that:

• the Samimis were not at ‘fault’ as they had a defence to the claims brought against them;
• Spectrum had lawfully suspended the works under the contract; and
• Mehran was not entitled to terminate the contract.   

Suspension of the Works

The Samimis argued that Mehran was subject to an implied term requiring it to cooperate with Spectrum by providing instructions that would permit the building works to proceed, which could be described as a duty of good faith and fair dealing. They asserted that Mehran breached that implied term by failing to provide instructions.   In reply the QBSA said that there were clauses in the contract that prevented a duty of good faith from being implied into the contract. The court rejected the QBSA’s argument.  Mehran was contractually bound to provide the instructions sought by Spectrum in for the electrics and hydraulics works under the contract.

The court rejected the QBSA’s contention that enough information had been given to allow Spectrum to continue its work. Mehran was required to provide instructions to address ambiguities in relation to the electrical and hydraulics works, and its failure to do so put it in breach of important terms of the contract requiring it to consult in a genuine way to resolve ambiguity and to not hinder Spectrum’s ability to carry the works. The necessary information in relation to those works was found to ‘simply not be there’, in circumstances where the instructions were critical to the continuation of the project and were required before the project could proceed in a meaningful way. On this basis, Spectrum was entitled to suspend the works, using the suspension clause in the contract.

Was the contract terminated?

The court held that the grounds on which Mehran based its termination of the contract were insufficient and did not provide it with an entitlement to terminate.

The first ground on which Mehran terminated the contract was Spectrum’s suspension of the works.  Spectrum was entitled to suspend the works under the contract but this did not provide Merhan with a lawful basis for terminating the contract.

The second ground for termination was Mehran’s allegation that Spectrum had failed to carry out the works in accordance with the architect’s plans. Mehran identified ten alleged defects.  The court held that only one of those defects provided a basis for the lawful termination, and that was a failure to construct a firewall.  Despite this defect, the court held termination was invalid due to a clause in the contract that prevented the parties from terminating the contract if they were, themselves, in substantial breach of the contract at the time. Mehran’s failure to provide instructions put it in substantial breach of the contract and therefore prevented it from exercising its right to terminate.  

The notice of termination issued by Mehran was held to indicate its intent to no longer be bound by the contract. This was a repudiation of the contract, which put Mehran in breach of the terms of the contract. The notice of termination issued by Spectrum was an acceptance of that repudiation, thereby providing the Samimis with a defence to QBSA’s claims against them.