Case study – Ramirez v Sherridon Pty Ltd

Recently we successfully brought a claim for a first-time homeowner against a Builder in a VCAT matter.

Ramirez v Sherridon Pty Ltd (Building and Property) [2022] VCAT 405, relates to a domestic building dispute where the Applicants (“the Owners”) issued proceedings in the Victorian Civil Administrative Tribunal against the Respondent (“the Builder”) which relates to a refund of the deposit as the Builder refused to refund the deposit when the building contract was ended.

By way of brief background, the Owners purchased a house a land package for $393,000. The Owners were advised that the land was an unregistered plan of subdivision and was expected to be registered in July 2018. The Owners entered into a domestic building contract with the Builder on 31 January 2018 to build a home on the land for $260,395 (“Building Contract”). The Owners paid the Builder a deposit of $13,065.75 under the Building Contract (“Building Deposit”). On 31 January 2018, the Owners also signed a Sale of Land Nomination Form which had the effect that HBK Image Pty Ltd, as purchaser, nominated them as substitute purchasers under a Contract of Sale to purchase the Land (“Land Contract”) for an amount of $123,000. The same representative from the Builder that signed the Building Contract, signed the Nomination Form on behalf of HBK Image Pty Ltd and the Owners paid a deposit for the land of $6,150 (“Land Deposit”)

The Land Contract was dated 15 December 2017 and was conditional upon the plan of subdivision being registered within 24 months from the date of the Land Contract. However, the plan of subdivision did not register within this time, so on 29 April 2020, the Owners sought to terminate the Land Contract and the vendors under the Land Contract agreed to refund the Land Deposit to the Owners.

On 4 May 2020, the Owners advised the Builder, that they had terminated the Land Contract and could not proceed with the Building Contract. The Owners requested the reimbursement of the Building Deposit less any costs the Builder had incurred to date. The Builder refused to return any portion of the Building Deposit.

At the time the Owners paid the deposit to the Builder, the Builder had not obtained the mandatory domestic building insurance. Therefore, the Owners claimed that they paid the Building Deposit under a mistaken belief, as they believed the deposit was payable when it in fact was not, and therefore the Builder should reimburse the Building Deposit.

The Owners also sought an order for interest on the amount of the Building Deposit from the date the payments were made and their costs of the proceeding.

The Builder disputed the Owners claims saying the Building Contract is binding on the Owners and that all necessary insurances required at the time were held. However, the Builder did acknowledge that domestic building insurance could only be issued in the name of the owner of the land (which obviously could not occur until the Owners settled on the land, which did not occur in this case). The Builder said that the Owners wrongfully terminated the Building Contract.

The Owners’ Claims

 Member Feeney considered a number of issues which were in dispute.

Accordingly, Member Feeney found:

  1. Under Division 3 Part 9 of the Building Act 1993 and pursuant to clause 7 of the Building Contract, a domestic building insurance policy was required, sometime also referred to as builders warranty insurance. The Building Contract was for domestic building works in accordance with the Domestic Building Act and the price of the Building Contract was $260,395 therefore it was an “insurable building contract.” Member Feeney considered the amended Domestic Building Insurance Ministerial Order dated 28 May 2014 (the Order).
  2. In accordance with Schedule 2 of the Order, an insurance policy had not been issued in relation to the Building Contract.
  3. Given a domestic building insurance policy had not been issued, the Building Deposit was not payable, therefore no monies were payable under the Building Contract until a domestic building insurance policy had been issued. Member Feeney was satisfied that there was no evidence that the Owners received any benefit from these works or costs, or that the Builder incurred those costs because of the receipt of the Building Deposit and the Owners are entitled to the reimbursement for the Building Deposit. Member Feeney also held that there was no enforceable contract as there was no domestic building insurance.
  4. The Owners were entitled to an order for interest on the amount of the Building Deposit. Member Feeney considered section 97 of the Victorian Civil and Administrative Tribunal Act 1998 and was satisfied the test that collectively the following factors are “fair” to award interest:
    1. The Owners whole claim was successful.
    2. The Builder’s whole defence was unsuccessful as there was no domestic building insurance issued.
    3. The Tribunal rejected the Builders Claim for breach of contract. As there was no domestic building insurance there was no enforceable contract.
    4. The entire Building Deposit was payable when the Owners made their claim, and it is reasonable that that amount should not be eroded by the passage of time.
    5. The delay in repayment by the Builder of the Building Deposit following demands for its return and then the issuing of the proceeding, means that Owners have lost the use of the money that has been found to be owed to them in this proceeding, during the period of the delay.
  5. The Owners were also entitled to claim a portion of legal costs.

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