Since 1 March 2021, residential builders have been entitled to pursue payment of progress claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOP Act’) where:

• they are licensed;
• there is a written building contract;
• the value of the works exceed $20,000.00; and
• home warranty insurance is in place.

This raises the question of what rights, if any, a residential builder has to pursue payment of a progress claim under the SOP Act where:

• they are unlicensed;
• there is no building contract; and/or
• there is no home warranty insurance?

In the case of Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor [2004] NSWCA 394, the NSW Court of Appeal had to consider, inter alia, whether a payment claim made by a builder under the SOP Act was invalid on the basis that the builder was not licensed under the Home Building Act 1989 (NSW) (‘HB Act’) at the relevant time and was therefore not entitled to any progress payment.

Brodyn submitted that, because the builder was not licensed under the HB Act, the building contract was illegal for the purposes of section 4 of the HB Act and unenforceable under section 10 of the HB. Accordingly, the builder had no entitlement to make the progress claim.

In considering this issue, the Court referred to the following relevant provisions of the HB Act:

• section 4 of the HB Act prevents a person from carrying out residential building work or specialist work unless they are appropriately licensed;
• section 10 of the HB Act provides that an unlicensed person who contracts to perform residential building work or specialist work is not entitled to enforce that contract; and
• section 94(1) and 94(1A) of the HB Act provides that a person who fails to take out home warranty insurance under section 92 is not entitled to recover money in respect of work performed under any action, including on a quantum meruit basis unless the Court considers it just and equitable.

The Court ultimately held the payment claim was valid for the purposes of the SOP Act. In making such finding, the Court noted the subtle distinction in civil consequences as between sections 10 and 94 of the HB Act. Importantly, the Court pointed out that the civil consequences for the performance of unlicensed building work under section 10 of the HB Act are more limited than those provided under section 94 and do not preclude the recovery of money whereas a failure to take out home warranty insurance will preclude such recovery under section 94 unless the Court considers such recovery just and equitable.

Key Takeaways

Although Brodyn was decided in 2004, it is yet to be overturned and remains good law. Consequently, residential builders can pursue outstanding payment claims via the SOP Act even if they are unlicensed or there is no written building contract. However, as Brodyn provides, there is no statutory right to pursue payment claims under the SOP Act where a builder has not taken out home warranty insurance.

While Brodyn provides a fall back for builders who fail to meet some of the requirements of the HB Act, this solely says builders have the right to make a claim under the SOP Act. It does not guarantee successfully recovery of any claim under the SOP Act. For this reason, builders should always ensure they:

1. are licensed before entering into residential building contracts;
2. have in place adequate building contracts that accurately describe the works to be performed and comply with the mandatory requirements of the HB Act;
3. all variations are signed and in writing; and
4. have in place adequate home warranty insurance before works are commenced.

Satisfying these key criteria will ensure a builder who performs residential building works has good prospects of pursuing payment under the SOP Act.