Iqbal v QBCC[2024] QCAT 2

REASONS FOR DECISION

1. [1]
   Mr Iqbal purchased a kit home from China. He engaged a building contractor, Mr Chowdhury, who was also an engineer, to organise sub-contractors to erect it. Mr Chowdhury was to be paid a management fee of $1500 on practical completion.
2. [2]
   Mr Iqbal emailed Mr Chowdhury’s representative, Dr Kabir, a quotation sheet from the manufacturer which contained the component parts’ specifications. Mr Chowdhury prepared structural drawings in his capacity as an engineer based on the specifications. Mr Chowdhury’s company, Australia Wide Consulting Services Pty Ltd, invoiced Mr Iqbal for that design work.
3. [3]
   In the course of construction, certain parts of the kit home were found to be at variance with the manufacturer’s specifications and therefore the engineering drawings based on the specifications required amendment. The variance caused delay in the project. The parties fell out over the delay and responsibility for the errors in the drawings. Mr Iqbal maintained Mr Chowdhury was responsible and he should have checked the component parts when inspecting them. Mr Chowdhury claimed Mr Iqbal had provided erroneous specifications.
4. [4]
   Mr Iqbal gave notice of breach of contract and then terminated the contract. He claimed against the statutory insurance scheme for incomplete residential construction work. The Queensland Building and Construction Commission (‘QBCC’) refused the claim on the basis that to make a claim a homeowner was required to terminate the building contract on the breach of the builder, and there had not been valid termination of the contract by Mr Iqbal.

The contract

5. [5]
   Dr Kabir, the representative of the builder, agreed to provide a quotation to Mr Iqbal for erection of the kit home. His evidence was that Mr Iqbal agreed to supply the kit home and Mr Chowdhury’s company, Innovative Builders and Engineers Pty Ltd, would organise subcontractors to construct the footings, erect the kit home, do the electrical work, install solar panels, and do the plumbing; Innovative Builders and Engineers Pty Ltd would charge Mr Iqbal the direct cost of these subcontractors without markup, and in consideration of that, Mr Iqbal would pay Innovative Builders and Engineers Pty Ltd $1500 on reaching practical completion.
6. [6]
   Dr Kabir prepared a quotation for that work. It was signed by both Mr Chowdhury and Mr Iqbal. There was no fixed price stated in the document. Page 14 of the document notes:

Offered price for installation = depends on the fees of trades.

NB: Some trades like electrician, plumber, waterproofing will give exact price upon installation of main structure. Therefore, exact price of installation has not (sic) put in offered price.

Certificate for roofing, glazing, waterproofing to be provided if the imported material meets all relevant Australian standards.

7. [7]
   Mr Iqbal applied for two home building grants, the first home building grant and another home building incentivising grant then available. He supplied the signed quotation as a building contract but was advised that a signed domestic building contract was required to qualify for the grants.
8. [8]
   Subsequently Mr Iqbal prepared and forwarded a QBCC New Home Construction Contract to Dr Kabir. The contract noted Mr Chowdhury as contractor and Mr Iqbal as owner. The contract price was $41,845, made up of a fixed-price component of $34,445 and non-fixed provisional sums totalling $7400. The completion time was 124 days, and the date given for practical completion was 12 April 2021.
9. [9]
   Method B for progress payments was completed with the first 4 stages bearing a note that the amounts had already been paid. They covered such things as the purchase of the kit home, architectural drawings, structural drawings, certification and building approval. They had a total value of $29,759.
10. [10]
    Stage 5 covered the installation of the kit home for an amount of $2000; stage 6 covered electrical work and solar panels similarly in an amount of $2000; stage 7 was described as plumbing and the amount allowed for that was also $2000; finally, there was an amount of $1650 allowed for the practical completion stage.
11. [11]
    The work to be completed in stages 4, 5, 6, and 7, and their cost allowances, were also noted as provisional sums in the provisional sums schedule to the contract.

The chronology of events

12. [12]
    Prior to the parties entering into a contract, on 26 October 2020, Dr Kabir on behalf of Mr Chowdhury provided to Mr Iqbal a Form 15 – Compliance certificate for building design or specification for the kit home. The certificate had been based on the manufacturer’s specifications and a site visit by Mr Iqbal and Dr Kabir.  Given the weight and bulk of many of the items, Dr Kabir was not able to measure or investigate particular components in detail. Instead he relied upon the specifications provided by Mr Iqbal when preparing the Form 15.
13. [13]
    Mr Iqbal and Mr Chowdhury prepared the quotation and then after that prepared and signed the QBCC contract on 25 November 2020.
14. [14]
    Mr Iqbal obtained the building development approval on 26 November 2020. On about 9 December 2020 work under the contract commenced.
15. [15]
    According to Dr Kabir, in the course of the build he discovered that various component parts did not accord with the manufacturer’s specifications and were not to Australian Standards. Dr Kabir said new drawings would be necessary and a reassessment by an engineer would be required.
16. [16]
    Work was done onsite up to the point where nothing more could be done without an engineer’s revised design, and when Dr Kabir determined that that point had been reached, Mr Chowdhury stopped work. That was on or about 23 February 2021.
17. [17]
    Neither party acted on a redesign. On 12 April 2021 the date for practical completion expired.
18. [18]
    On 29 June 2021 Mr Iqbal sent a notice of breach of the contract to Mr Chowdhury. The next day, on 30 June 2021, he forwarded an “amended” breach notice to Mr Chowdhury.
19. [19]
    On 15 July 2021 he sent an email advising he terminated the contract.

The statutory insurance scheme

20. [20]
    The statutory insurance scheme is dealt with in Part 5 of the Queensland Building and Construction Commission Act 1991 (Qld) (‘QBCC Act’). By s 67X of the QBCC Act:

3. Statutory insurance scheme

3. …

3. (2)
   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.

3. (3)
   Assistance can not be provided under the scheme to a consumer unless the consumer has suffered loss as a consequence of residential construction that is defective or incomplete.

3. …

21. [21]
    The word “incomplete” used in sections 67X(2) and (3) is defined in s 67WA as work that has not reached practical completion.
22. [22]
    Practical completion for the purpose of the statutory insurance scheme is further defined in s 67A, as relevant here, as the day practical completion of the work is achieved as worked out under the contract.
23. [23]
    Section 67Y states that the terms of insurance cover are as prescribed by regulation.
24. [24]
    The regulation is the Queensland Building and Construction Commission Regulation 2018 (Qld), Schedule 6.
25. [25]
    Section 6 of Schedule 6 sets out the circumstances where a person will be entitled to make a claim against the statutory warranty scheme if residential construction work has started but not been finished:

3. Application of division

3. This division applies to a consumer for residential construction work if—

3. (a)
   the work is carried out under a fixed price residential contract; and

3. (b)
   the contract ends within 2 years after the day work starts under the contract; and

3. …

3. (c)
   the work is incomplete….

26. [26]
    Section 3 of Schedule 6 explains the meaning of fixed price residential contract:

3. Meaning of fixed price residential contract

3. (1)
   A fixed price residential contract is a contract between a consumer and a licensed contractor for residential construction work for which the price is fixed except for the effect of the following—

3. (a)
   prime cost items;

3. (b)
   provisional sums;

3. (c)
   increases to reflect increased costs of labour or materials or delays in carrying out the work.

3. (2)
   However, the following contracts are not included for subsection (1)—

3. (a)
   a construction management contract….

27. [27]
    As relevant, s 4 of Schedule 6 defines the limited circumstances applying to the ending of a contract for the purpose of triggering the scheme:

3. When fixed price residential contract ends

3. (1)
   A fixed price residential contract ends if—

3. (a)
   the contract is validly terminated on the default of the licensed contractor

3. …

3. (2)
   In this section— validly terminated, for a fixed price residential contract, does not include mutual abandonment of the contract by the parties to the contract.

3. (emphasis added)

The issue for determination

28. [28]
    There is only one issue for determination – was the contract validly terminated by Mr Iqbal on the default of the licensed contractor, Mr Chowdhury?

Consideration

29. [29]
    The matter at hand is not a building dispute. It is an application to review the decision made by the QBCC to refuse Mr Iqbal’s claim against the statutory insurance fund based on the builder’s failure to complete the contract.
30. [30]
    A primary focus of Mr Iqbal in the proceeding has been to establish a breach of contract on the part of the builder. Secondarily he addresses termination based on the builder’s breach.
31. [31]
    Regardless that it be established that the builder was at fault and in breach of the contract, if the contract has not been validly terminated by Mr Iqbal, the subject of builder’s default becomes otiose (of no practical purpose) and there is no relief available to Mr Iqbal through these proceedings.
32. [32]
    He may well have claims against the other parties involved in the construction, but those other claims cannot be considered in the review proceedings.
33. [33]
    Given I determine the contract was not validly terminated by Mr Iqbal on the default of the builder, any finding I make about the parties’ respective responsibilities and failings under the contract (or contracts) serves no useful purpose. The builder, Mr Chowdhury, is not a party to the within proceedings, and even if he was, claims that issue estoppel arises in review proceedings and are able to be relied on in subsequent building dispute proceedings will not necessarily be successful.^[1]
34. [34]
    I find Mr Iqbal did not validly terminate the contract with Mr Chowdhury on the latter’s default. I shall explain why.

The notices of breach

35. [35]
    The notices of breach of 29 June 2021 and 30 June 2021 are similar, but the latter adds additional demands of compensation and sets a fresh date for practical completion.
36. [36]
    Mr Iqbal does not explain the circumstances whereby the “amended” notice of breach was served. Indeed, it seems QBCC were not aware of the different notices of breach until the matter was raised at hearing. The inconsistencies may have proved an additional stumbling block for Mr Iqbal had compliance with the former been an issue, but it is not. Neither notice was valid.

The amended breach notice

37. [37]
    Mr Iqbal relies on the amended notice of breach. I address that breach notice in particular.
38. [38]
    The amended notice commenced with a claim that Mr Chowdhury was in breach of the QBCC New Home Construction Contract items 6 and 7 of the contract schedule. The notice clearly purported to be a notice pursuant to clause 26 of the contract general conditions.
39. [39]
    Items 6 and 7 concerned the date for practical completion. The breach notice gave the following particulars of breach:

The contract was breached as per condition 26.4.d where it is said –

“unreasonably failing to perform the work diligently or unreasonably delaying, suspending or failing to maintain reasonable progress;”

here –

1) you fail to achieve the practical completion date of 12/4/2021 as per the contract (condition 22, 28)

2) you fail to complete my home within the completion period of 124 days as per the contract. (Condition 22, 28).

3) more than 2 months has been passed since that practical completion date but you did not claim any extension of practical completion date. (Condition 23.1.c)

4) as the building materials were left outside the storage container for a period of 5 months they became rusty and damaged. Even the footing posts and some cross beams which are Australian product have become rusty. (Condition 26.4.c “unreasonably failing to replace or remedy defective work or materials.”)

Without prejudice to any rights which I may have under the contract, this breach may be remedied within 10 business days from today. Specifically the breach must be remedied as follows:

40. [40]
    Mr Iqbal then sets out in the notice what the contractor is required to do to “remedy” the breach:

3. (a)
   Practical completion and certification to be achieved within 90 days from 30 June 2021;

3. (b)
   Rusty materials to be checked and their structural integrity certified; if they cannot be used the contractor is required to provide new materials at the contractor’s own cost;

3. (c)
   The rest of the construction costs (as per the contract) to be paid after “certification” and “after adjusting my losses due to the breach as follows”:

3. (i)
   No variations were to be made for stages 4 to 7 referred to in item 8B of the contract (footing stage, assembling stage, electrical work stage, plumbing stage). Stages 4 to 7 were be completed for the cost estimates mentioned in the contract. Any extra cost was to be paid by the builder/contractor.

3. (ii)
   The footing stage had been budgeted at $4436 including $1400 for site survey. Mr Iqbal had been charged $5322 excluding the cost of site survey, which meant an overcharge of $2286. The overcharge was a variation and had not been agreed upon nor a variation document provided. The builder was therefore required to compensate Mr Iqbal the overcharge of $2286.

3. (iii)
   The assembling stage, plumbing stage, and electrical work stages were to be completed in accordance with the “budgets” referred to in the contract.

41. [41]
    The requirement that the builder achieve practical completion set for 90 days hence within the 10 days remediation period nominated in the breach notice was clearly impossible.
42. [42]
    Where a party to a building contract relies on the notice of breach provisions in the conditions of contract, the notice and subsequent termination must carefully follow the requirements of the relevant conditions. The general rule about such clauses was explained in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (no. 3) [2012] VSC 99:

388 Hudson's Building and Engineering Contracts, state the general rule concerning modern contractual determination clauses that require written notice in one form or another at the time of determination of the contract in these terms:

Express notice requirements are often in ‘two tier’ form … In every case the clause must be carefully considered and closely followed in all respects, both as to the contents and timing of the notices, but the courts will usually regard the notices as commercial documents, and the modern approach is to interpret notice clauses with regard to their commercial purpose [Mannai Investments Co Ltd v Eagle Star Assurance [1997] AC 749]. Provided a reasonable recipient of the notice can be left in no reasonable doubt as to its meaning the form of words used will usually not be important. The contents of the notice then have to be matched against the relevant requirements in order to determine whether it meets them [Trafford MBC v Total Fitness (UK) Ltd [2002] EWCA Civ 1513, at [49]]. Applying this principle notices referring the reader to the applicable clause of the contract and identifying the default are generally likely to be sufficient. [Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal Council [1965] NSWR 1671 see also Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd [2010] EWHC 465 (Comm)]. On the other hand, time limits or requirements will ordinarily require strict compliance, particularly those requiring continuation of a default for a specified period [Eriksson v Whalley [1071] 1 NSWLR 397]. Particularly where a determination clause is conditioned on a number of different eventualities or defaults of the contractor, it is evident that any required preliminary notice should sufficiently identify the particular ground relied upon, if that is called for by the contract (and particularly where continuation of the default is made a condition of any second notice), but further detail, particularly in regard to a generalised ground like due diligence, will not usually be called for.

43. [43]
    Here the breach notice inappropriately demanded things from the builder in purported remediation of the claimed breach which were not relevant to the breach.
44. [44]
    Mr Iqbal required the builder to also concede, in writing, that Mr Iqbal would suffer further, significant “losses” which Mr Chowdhury was obliged to pay to him if Mr Chowdhury failed to remedy the breach as required. Such losses (which at that stage were mere possibilities) as payment of $15,000 attributable to the first home buyer grant; $25,000 to cover the loss of the home builder grant “due to any miscommunication of the contractor with revenue office (sic)”; and compensation of $7,000 to compensate Mr Iqbal for “renting any suitable residential home up to the date of certification.”
45. [45]
    Not only that, but Mr Chowdhury was also obliged, to remedy the breach, to agree to significant variations of the terms of the contract.
46. [46]
    Item 1 of the schedule to the contract recorded the contract price as $41,845, broken up into a fixed-price component of $34,445 and provisional sum components totalling $7400.
47. [47]
    The agreed stages of work 4, 5, 6, and 7 were recorded as provisional sums in the contract. By the notice to remedy breach Mr Iqbal now required the builder to agree that the agreed provisional sums become fixed prices binding the builder.
48. [48]
    Mr Chowdhury was further obliged to refund that part of moneys paid to him for the completed stage 4 footings work which exceeded the provisional amount nominated for the work. There was no suggestion that such work was defective.
49. [49]
    The breach notice also required Mr Chowdhury to agree that the builder would not be paid “construction costs” until Mr Iqbal’s possible losses under the contract were identified by Mr Iqbal and recovered by Mr Iqbal (presumably in last resort from the builder). Effectively Mr Iqbal required the building work to continue, but without any of the remaining stage payments due on completion of each stage, including the contractor’s payment due at practical completion, being paid by Mr Iqbal as provided for by the contract.
50. [50]
    There were yet further fundamental problems to be found with both the amended breach notice and its predecessor dated 29 June 2020.

Clause 26 of the contract

51. [51]
    Clause 26.1 of the general conditions of contract provided:

3. 26.1
   If:

3. (a)
   a party is in substantial breach of this Contract; and

3. (b)
   the other party gives a notice to the party in breach identifying and describing the breach and stating the intention of the party giving notice to terminate the Contract if the breach is not remedied within 10 Business Days from the giving of the notice; and

3. (c)
   the breach is not so remedied, then the party giving that notice may terminate this Contract by a further written notice given to the party in breach and may recover from the party in breach all damages, loss, cost or expense occasioned to the party so terminating by or in connection with the breach or that termination and may set off such claim against payment otherwise due by the party so terminating.

3. 26.2
   The right to terminate under this Condition is in addition to any other powers, rights or remedies the terminating party may have.

3. …

3. 26.4
   Substantial breach by the Contractor includes, but is not limited to:

3. …

3. (c)
   unreasonably failing to replace or remedy defective work or materials;

3. (d)
   unreasonably failing to perform the work diligently or unreasonably delaying, suspending or failing to maintain reasonable progress;

3. …

52. [52]
    Neither notice stated, as required by clause 26.1(b), a clear intention to terminate the contract if the breach was not remedied within 10 business days from the giving of the notice.
53. [53]
    This failure, regardless of the burdensome and unreasonable demands to make changes to the contract and agreed concessions about payment of compensation set out above, rendered the amended breach notice invalid and ineffective as notice of breach given, pursuant to clause 26. Mr Chowdhury’s failure to comply with (either) breach notice did not give Mr Iqbal any entitlement to terminate the contract, which he purported to do on 15 July 2021.

General law power to terminate

54. [54]
    Nor was Mr Iqbal in a position to terminate the contract under the general law. Termination under the general law was not excluded by the terms of the contract – by clause 26.2 the right to terminate under the contract was in addition to any other powers, rights, or remedies the terminating party might otherwise have.
55. [55]
    The claimed breach of contract by the builder was non-compliance with items 6 and 7 of the contract: failure to achieve practical completion by the agreed date.
56. [56]
    In domestic building contracts, time is not usually an essential condition of the contract. In lieu, such contracts, including the contract at hand, provide for the payment of compensation for a failure to achieve practical completion on time in the form of liquidated damages. After the date for practical completion had passed, had Mr Iqbal wanted to make time of the essence of the contract, reasonable notice had to be given to Mr Chowdhury setting such a fixed, final date.
57. [57]
    At best it might be argued that the amended notice set a date for practical completion 90 days from the date of notice. But on 15 July 2021, a mere 15 days after giving the breach notice, Mr Iqbal purported to terminate the contract. That was no reasonable exercise of power to terminate under the general law. Mr Iqbal was not entitled to act so precipitously.
58. [58]
    In result the purported termination of the contract on 15 July 2021 was ineffective, which meant for the purpose of the claim under the statutory insurance scheme, the statutory requirement that the contract be validly terminated on the default of the licensed contractor was not satisfied. Mr Iqbal was therefore not entitled to claim against the statutory insurance fund for incomplete work.
59. [59]
    The decision of the QBCC refusing insurance cover is confirmed.