Hansard debates

                 DOMESTIC BUILDING CONTRACTS AND TRIBUNAL BILL
                                 Second reading

  Mrs WADE (Attorney-General) -- I move:
  That this bill be now read a second time.
This bill contains a package of unprecedented reforms to the home  building  and
renovation industry in Victoria, which will be of significant assistance to home
owners and  builders alike. The  House Contracts Guarantee Act  1987 is outmoded
and inefficient and has  not  kept  pace with recommendations for change in this
industry.

This bill is the result of extensive  industry  and community consultation and a
detailed  consideration  of interstate domestic building  systems,  as  well  as
reports by the Trade Practices Commission  -- Home building -- consumer problems
and solutions, November 1993 -- and the Public Accounts and  Estimates Committee
of this Parliament -- its eighth report to Parliament entitled Housing Guarantee
Fund Ltd, September 1994.
The government believes the system to be introduced in Victoria will be the best
in  Australia  as  we are  in  the  fortunate  position  of  learning  from  the
experiences  of  others.  Also,  we  are  able  to  make  use  of  the  valuable
recommendations made to us by those with whom we  have consulted as well as  the
recommendations in  the reports of  the Public Accounts  and Estimates Committee
and the Trade Practices Commission.

At present the Housing Guarantee Fund Ltd (HGF) is  the  approved  guarantor for
the purposes of the House Contracts  Guarantee Act  1987. This means that HGF is
currently the sole  body to provide recompense  to building owners whose  houses
are built or renovated in  a  defective  fashion  or  not  completed.  HGF  also
currently registers domestic builders  and,  through  its appeals committee, has
the final say in the assessment of consumer claims.
Many consumers have complained  that  HGF  is  bureaucratic and too slow to make
decisions, that it is pro-builder and, on a more philosophical level, that there
is an inherent conflict of interest in its multiple roles. At the same time some
builders have also found HGF to be slow  in  its  decision-making  processes and
have expressed concerns  as  to the qualifications  of HGF inspectors and  their
ability to assess damages and facilitate dispute resolution.

Whatever  the merits of these often-made assertions against  HGF by builders and
home owners,  the government is  confident  that both parties  will benefit from
greater private enterprise competition, the efficiencies of  scale  inherent  in
joining  similar bureaucratic functions, and the establishment of an independent
dispute resolution body.
The reforms contained  in this bill  constitute  a comprehensive and  integrated
package comprising: first, a domestic building  disputes  tribunal,  providing a
means  by  which  builder  and   consumer  disputes  can  be  expeditiously  and
inexpensively handled at  any stage of the building process or  after; secondly,
registration  under  the  HGF  scheme will be replaced by an  extension  of  the
Building Act  1993 to cover domestic  builders; thirdly, the insurance cover for
building owners will be  privatised;  and  finally,  domestic building contracts
will be required to  contain certain minimum terms  and conditions and statutory
warranties.

The  bill proposes the establishment  of a Domestic Building Tribunal to resolve
all domestic building disputes. The tribunal will be attached  to the Department
of Justice so that  it  can  benefit  from  the  support structure and expertise
provided to a range of tribunals already attached to the department -- that  is,
administrative appeals, small claims and residential tenancies tribunals.
The  tribunal will be non-legalistic and will deal with matters quickly  and  at
minimal  cost. A  hearing of  a domestic building dispute will  be by  a single,
legally qualified person, who will be able  to  call  such  expert  evidence and
assistance as is necessary in the interests of justice. The tribunal will have a
wide discretion in  the awarding  of costs  so that  the concept  of fairness is
clearly adhered to. Legal representation will be permissible with the consent of
all  parties before the tribunal, or where directed by the  tribunal due  to the
nature of the issues being considered.

The tribunal is to  be established as a single  point for the resolution of  all
domestic building disputes and courts  will be required to refer matters brought
before them to the tribunal for consideration unless the parties to the  dispute
explicitly request that the matter be dealt with by the courts.
One of the  prime advantages of the tribunal over the current system will be its
ability  to resolve mid-contractual  disputes -- that  is, those disputes  which
arise before the completion of the  building  contract. This will be achieved by
either party to a
dispute being able to call on an independent inspector appointed by the Building
Control Commission to look at  the works and make a  finding as to whether  they
conform to the agreed plans and specifications.

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Alternatively, either party can bring an  action before the  tribunal, including
in the case of the owner  a stop-work  action to  prevent further aggravation of
the problem being experienced.
It is proposed   that the registration  of  domestic builders will  be conducted
under  the Building Act  1993,  and therefore linked  with  the registration  of
commercial builders  and other building practitioners.  Not only will this  be a
simpler system for  builders  who operate in  both  the commercial and  domestic
arenas,  but  efficiencies of scale  will result from all  licences being issued
from the one organisation.
The  Domestic  Building  Tribunal will be able to refer issues  which  arise  in
hearings before it and  which  may  have  a  disciplinary aspect to the Building
Practitioners Board for consideration and appropriate action.

This will ensure that the performance of domestic builders will be independently
assessed to  determine  their suitability  to  remain registered. It  will  also
ensure that the livelihoods of  good builders who have difficult clients are not
threatened by arbitrary action against them.
At present, HGF issues a seven-year guarantee with  a maximum  cover of  $40 000
warranty over the  domestic building works of  registered builders. HGF  is  the
sole supplier of such guarantees and as such the community does  not receive the
benefits  that free and open competition can bring.  The bill therefore proposes
that  a  range of insurance options  will be open to the  builder, which will be
supplied by private insurance companies. The insurance will be able to vary from
a warranty system similar to that operating now,  to an insurance scheme similar
to  that endorsed  by  the Housing  Industry  Association  in  South  Australia,
Tasmania and the Australian Capital Territory, to a professional indemnity-style
scheme.

All these schemes may differ  in details such as how they are  paid for, but all
will be clearly expressed to be in favour of the owner, and be extended from the
currently available system in the following ways.
Firstly, a minimum amount of $100 000  insurance will now be required. Secondly,
ambiguities and inconsistencies  in the current coverage will be removed -- that
is, in the case of new  home construction,  everything from  the house itself to
paving, driveways, fences and swimming pools will be covered if included as part
of  the initial contract. For renovations or the building of structures such  as
granny flats, the work will be covered if it  exceeds $5000  in value,  combines
multiple trades, and requires the  issue  of  a  building permit. By these means
previous  controversy over coverage  of buildings such as  granny flats will  be
avoided.  Granny  flats  are  currently   covered  only  where  they  are  fully
self-contained.

While the number of different  insurance schemes offered might  not be extensive
initially, the  government is confident that  more insurers will be attracted to
this area, thereby creating  even  greater  competition, as cross-border markets
are  developed. To  this end  it is  proposed that Victoria and New  South Wales
develop schemes  sufficiently similar so that  the same insurers  can operate in
both markets with minimal if any differences in the products offered.
One of the  key  areas  that  has  caused  difficulty  in  the domestic building
industry to  date  is the owner's  ability to understand  the  domestic building
contract.  Sometimes  this  problem  has  been  compounded  by   a  minority  of
unscrupulous builders who  deliberately  underquote and do not reveal inevitable
additional costs to the homeowner until the work on the contract has commenced.

It  is acknowledged that  the industry associations  have  taken the responsible
attitude of producing  standard  contracts for use  by  their members, and  that
plain  English contracts which are more comprehensible to the owner are becoming
more common. However, the government  still believes that the contracts could do
more to clarify the rights of the building owner, the average Victorian family.
The  current  act prescribes  certain  minimum terms and  conditions in domestic
building contracts. The current bill builds upon these by concentrating on areas
that have historically been  the cause of  considerable dispute -- for  example,
work undertaken to be able to make a proper costing  for a contract before it is
signed and variations to the contract.
The  bill also incorporates a number of statutory warranties into every building
contract for the protection of the homeowner.

The warranties cover such matters as warranting that the building is being built
in accordance with the  plans and specifications, that it is fit for the purpose
which was indicated to
the builder, and that it is built of  new  materials unless otherwise specified.
The bill prohibits compulsory arbitration clauses. It is the government's belief
that, far from  being  a quick and  cost-effective means of  resolving  building
disputes, as was intended, arbitration has often  become overly legalistic, time
consuming and expensive. Arbitration will be permissible only where both parties
to a contract have explicitly evidenced a desire to follow this sort  of dispute
resolution. Arbitration will not be able to appear as a standard term in general
domestic building contracts.
SECTION 85 STATEMENT

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It is the intention of  sections 57 and 134 to  alter or vary section 85  of the
Constitution Act  1975. I therefore make  the following statement  under section
85(5) of the Constitution Act 1975 of the reasons  for altering  or varying that
section.
Section  57  relates to a person commencing an action in the Magistrates, County
or  Supreme  courts  where this  matter  arises wholly or  predominantly  from a
domestic building dispute. In such cases, the court must dismiss the action if a
party to the action requests this, the matter could be heard by the tribunal and
the court  has not heard oral evidence in relation to the dispute. The provision
does not relate to matters dismissed by the tribunal under section 97. Any party
to the dismissed court action may apply to the tribunal for an order in relation
to the domestic building dispute. Section 134 expressly states the intention  to
alter or vary section 85 of the Constitution Act 1975.

The  public  policy  rationale  for this proposal is the intention to provide  a
single, inexpensive,  time-efficient  and  expert  forum  for  the resolution of
domestic building disputes. Domestic building disputes are a special category of
dispute  where  timeliness  of resolution  is  critical, and  where  less formal
proceedings  are more likely  to reach  the heart  of the  matter than  the full
panoply of the law. Therefore, a party to the dispute should be able to have the
option of  taking advantage of the benefits offered by the tribunal if a  matter
is brought before the courts for resolution.
The government  believes  this significant set of proposals sets forth a new and
fairer relationship between builders and homeowners. The proposals are built  on
the  concepts  of  equity  and  simplicity. Bureaucratisation is  minimised  and
processes  have  been  made  as  speedy  and  cost  efficient as possible. I  am
confident that the proposals will greatly benefit the domestic building industry
in this state.

I commend the bill to the house.
Debate adjourned on motion of Mr MILDENHALL (Footscray).
Debate adjourned until Tuesday, 7 November.