Schneider v Queensland Building and Construction Commission [2021] QCA 155

by David Pearce, Hazal Gacka and Charlotte Lane

Key takeouts

A claim made under the statutory insurance scheme, established under the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), will be reduced by the amount of any ‘prepayments’ made to a contractor. Under the scheme, there is a clear distinction between ‘prepayments’, which are monies paid before work is undertaken, and monies which are ‘due’, which is payment for work that has actually been carried out.

Facts

The applicants (the Schneiders) entered into a building contract (Contract) with Contract Build Pty Ltd (Contract Build) to erect a house on a block of land they owned in Roma. The agreed price for the construction was $284,900, to be completed and paid over six stages. The first three payments were made between January and July 2014 (for the deposit and completion of two construction stages). In October 2014, the Contract was novated (i.e. transferred) to Line Constructions Pty Ltd (Line Constructions).

Two certificates of insurance under the statutory insurance scheme under the QBCC Act were issued in relation to the Contract, the first when Contract Build was the contractor and the second when Line Constructions became the contractor. Section 67X of the QBCC Act provides that the purpose of the statutory insurance scheme is to provide assistance to consumers of residential construction work for loss associated with work that is defective or incomplete.

In 2015, Line Constructions sent the Schneiders invoices accompanied by photographs that purported to show completion of the third and fourth stages of construction. Unbeknown to the Schneiders, the photographs were of a different property and Line Constructions had done no work at all under the Contract. Line Constructions made two fraudulent claims for the next two progress payments owing under the Contract, totalling $128,205. In 2016, the Schneiders became aware that Line Constructions had made fraudulent claims and made a complaint to the Queensland Building and Construction Commission (QBCC). That complaint initiated a claim under the statutory insurance policy (Policy). Following this, the Schneiders terminated the Contract with Line Constructions.

The QBCC’s decision on the claim

Under the statutory insurance scheme, the QBCC will pay an insured’s loss for, among other things, non-completion of insured work referred to in a certificate of insurance. Clause 1.6(b) of the Policy provides, where in the opinion of the QBCC, the insured pays to or on behalf of the contractor any monies for the contracted works before they become due (ie a ‘prepayment’), the QBCC will reduce the amount payable under the Policy by the value of the prepayment. The value of the prepayment is the QBCC’s assessment of the value of the incomplete work in the stage of the contract for which the prepayment was made.

The QBCC considered that the Schneiders had made prepayments to Line Constructions before the work had actually been undertaken and the monies had become due. Consequently, the QBCC denied the claim under the Policy.

The Queensland Civil and Administrative Tribunal

The Schneiders commenced proceedings in the Queensland Civil and Administrative Tribunal (QCAT) to review the decision of the QBCC. QCAT decided to permit the claim by the Schneiders.

The QBCC appealed this decision to the Appeal Tribunal of QCAT (Appeal Tribunal). The Appeal Tribunal held that the payments were prepayments under the Policy and the QBCC was entitled to reduce the amount payable to the Schneiders under the Policy by $128,205 reflecting the prepayments made by the Schneiders. The Schneiders sought leave to appeal against the Appeal Tribunal’s decision to the Supreme Court of Queensland

Decision

The appeal on the limitation question was dismissed.

The Court of Appeal rejected the Schneiders’ application for leave to appeal. The question to be answered was whether the payments by Schneider to Line Constructions had been paid before they had become due and were therefore a ‘prepayment’ for the purposes of clause 1.6(b) of the Policy. The correct construction of clause 1.6(b) was that money cannot become ‘due’ for works which are not done.

Clause 1.6(b) is not dependent upon the particular conditions of a contract or the reason why the works had not been done. It did not depend on the knowledge of the owner or the state of mind of the contractor. Clause 1.6(b) operated solely upon the question of whether work had been done and therefore the money for that work had become due. If payment is made before that point, it should be construed as a payment of money for the contracted works before they become due – in other words, prepayment for work that has not been done and is therefore ‘incomplete work’ within the meaning of clause 1.6(b).

It could not be the intention of the statutory insurance scheme to embroil the QBCC in an adjudication of the merits of claims. Therefore the obligation of the QBCC under clause 1.6(b) on the Court’s construction is the simple assessment of whether work has been done or not and whether a prepayment has been made or not. Consequently, the QBCC was entitled to reduce the amount payable to the Schneiders by $128,205, being the payment made by the Schneiders to Line Constructions, which was payment of money for the contracted works before they became due. This was simply due to the fact the work had not yet been done by Line Constructions.