The Price of Justice

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Monday, December 29th, 2014
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The building industry is full of serious disputes; both builders and consumers are seeking justice, and it continually evades both parties.

Back in 2002, the scheme we have today under the guise of consumer protection for the building industry was introduced. This new scheme became known as Last Resort Builders Warranty Insurance (BWI) in Victoria, and Home Owners Warranty (HOW) Insurance in NSW.

Promoted as a better scheme for builders and one that would provide greater protection for consumers, the scheme in fact primarily benefited the industry associations through income earned on selling the product.

This is the product that manages our building industry, as it determines what a builder can build by limiting their annual turnover and only the insurance letter of eligibility activates a builder’s licence. For the consumer, it can be a can of worms as they often find out when something goes wrong. In those cases, they often find the warranty insurance is as elusive as a slippery eel as it only has limited triggers to claim.

In most cases, there is no trigger to claim but in the event there is, the consumer forges ahead believing there will be a good outcome only to find the benefit is outweighed by the legal cost. In the words of Deputy President C. Aird of VCAT in the case No D616/2008, “As is so often the case, the damages awarded by the tribunal in respect of the builder’s alleged breaches were significantly less than the amount claimed, and as counsel for the insurer noted, the owners apparently spent in excess of $180,000.00 (including their own time) to recover a little more than $50,000.00.”

The previous government in Victoria recognised the failings of this system and was on the cusp of implementing reforms that would go a long way toward a better system. That government presented its new system as a one stop shop in a 500-page document that was introduced into the Parliament and proceeded through the Parliamentary process to a second reading, where it stalled.

Certain trade associations claimed victory in stopping this legislation, stating it was not thought through, and they were not consulted in its formation. Such consultation was not intended by the Coalition, as the government believed it was the trade associations’ influence that had created what they termed a dog’s breakfast of a building industry.

The Auditor General’s report of November 2011, followed by the Ombudsman report, was the beginning of the end for the Building Commission, which had been involved in collusion, corruption and the misuse of public monies among other issues, such as issuing builders licences for a fee.

And so was born the Victorian Building Authority (VBA) to take its place. Most believe it is simply the old Building Commission rebadged – and with good reason, as it operates under the same charter.

The Auditor General has now commenced an investigation into Victoria’s consumer protection framework which will explore all aspects of warranty insurance and its ability to protect building consumers together with the role it plays and the effect it has on a builder’s business.

The change in the Corporations Regulation 7.1.12(2) made by Treasurer Joe Hockey’s office in October 2001 saw all regulatory oversight removed from the product known as Builders Warranty Insurance and this is what keeps all aspects secretive. The politician that currently has carriage of this product is Acting Assistant Treasurer, Senator Mathias Cormann. In his letter to the Builders Collective from May of 2014, he does not see an issue with the current arrangements and feels its up to the States and Territories to apply disclosure and other consumer protections to this product.

Unfortunately, Cormann is ill-advised on the facts.

The Coalition reforms that sit before the Parliament appear doomed, and it is now up to the new Government to address the issue of the building industry and where its future may lie, as its fall from grace over the past 12 years has seen a once proud domestic building industry fall into such a state of disrepair that it will take decades to restore basic confidence and integrity.

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