The Hon. E. M. OBEID (Minister for Mineral Resources, and Minister for Fisheries) [6.41 p.m.]: I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

In 1996, the Carr Government introduced a number of significant reforms for the regulation of the home building industry. The major change was the replacement of the government operated insurance scheme, with a scheme provided by approved private insurance companies. The new scheme commenced in May 1997. It has provided increased protection for consumers as well as opening up the provision of insurance to competition. After two years of operation, the system has shown itself to be an effective alternative to a government operated scheme while the Government retains a critical role in regulation.

The scheme as it now stands requires insurance cover of at least $200,000 to be provided for each dwelling. The period of cover for defective work is 7 years from completion of the project while for incomplete work, the cover is 12 months from when work ceases. The Department of Fair Trading is responsible for monitoring the operation of the insurance scheme. The department meets regularly with insurers to discuss administration and issues impacting on consumers.

Industry, insurance providers and consumers provide the department with valuable feedback on the scheme’s operation. The Government requires the Department of Fair Trading to liaise with these groups to ensure that the legislation operates well. As a result of this ongoing liaison, and the department’s monitoring of the scheme, the Government considers it necessary to make a number of changes to the Home Building Act. The changes will ensure that consumers are provided with even better protection against faulty and incomplete work while giving those in the industry greater confidence that the scheme is operating fairly from their perspective.

The bill contains reforms that link the ability of a contractor to obtain insurance with their ability to obtain a license from the Department of Fair Trading. This measure ensures that standards within the building industry are maintained at their best and consumer confidence is maintained. Licensees contracting to do residential building or supply a kit home for an amount over $5,000 are required to enter into a written contract and attach a certificate of insurance to that contract. While a contractor cannot do work over $5,000 without insurance, there is currently nothing in the Act to prevent an undercapitalised contractor from continuing to hold a license.

The Government believes that the public is entitled to expect that a licence holder is not only technically qualified and experienced but also that he or she has the financial capacity to undertake the work. To improve industry awareness of the insurance provisions and to give consumers greater confidence in the licensing system, the bill provides for the linking of licensing with insurance. In this regard the Director-General of the Department of Fair Trading will not be able to approve an application for, or renewal of, a licence unless satisfied that the applicant has or is eligible to obtain insurance cover for future work.

Where the director-general is informed that a licence holder no longer has or is eligible for insurance, the director-general will be able to suspend the licence until the licensee provides proof to the contrary. The form of proof would consist of written notification from one of the approved insurers that the applicant has a current annual policy or, if job specific insurance is favoured by the applicant, that the applicant is eligible to obtain such insurance.

Contractors who currently hold special limited categories of licence that exclude work over the value of $3,000, will not be affected by the proposed change. Contractors who engage in low value work with unrestricted limits on the licence will need to provide evidence of eligibility for insurance as a threshold for licensing. The proposal to link licensing with insurance is consistent with moves in other jurisdictions to streamline the process; for example, it is in line with provisions which operate under Victorian legislation. Victoria has a private insurance scheme similar to the New South Wales scheme.

In addition to home warranty insurance requirements, the bill will enable a regulation to be made to specify additional types of insurance; for example public liability could be a prerequisite to granting a licence. Additional insurance will be prescribed only where appropriate to provide consumers with increased protection. Before such a regulation is made consultation will take place with consumer and industry groups.

The Home Building Act also obliges those homeowners who choose to conduct their own building work to take out insurance in certain circumstances. If an owner builder wishes to do work relating to a single dwelling or a dual occupancy costing over $3,000 which requires council approval, he or she must obtain an owner-builder permit from the Department of Fair Trading. Permits are restricted to individuals who intend to reside in the building after the work is done. Where the work costs more than $5,000 the permit holder must not enter into a contract for sale of the land within a period of 7 years from completion of the work unless insurance covering the work has been taken out by the owner-builder.

The purpose of the insurance is to provide cover for purchasers of owner-builder work against defective work. Each year the department issues around 15,000 to 20,000 owner-builder permits. In view of the low risk to subsequent owners and the cost for owner-builders, after careful

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consideration the Government has decided that the requirement for owner-builders undertaking minor work to have to arrange insurance covering their work is too onerous. The bill therefore provides that regulations will be able to be made to prescribe classes of work done by owner-builders that will not require insurance.

While the class of work is a matter for further consultation prior to regulations being made, such work may include items such as pergolas and decking. Removing the need for minor work to be insured by owner-builders will have a limited impact on subsequent purchasers. This is because under the existing legislation, certain defects in owner-builder work are already excluded from cover. In this regard, a subsequent purchaser is not covered for any defects itemised in a report on the owner-builder work obtained by the insurer, at the time the policy is issued to the owner builder. It is likely that most defects in minor owner-builder work will be identified in such a report and therefore not covered.

Removing owner-builder insurance for minor work should not expose purchasers to increased risk. Further, as from 1 January this year a licensed contractor engaged by an owner-builder to do work over $5,000 must take out insurance covering the contractor’s work. Such insurance covers both the owner-builder and the subsequent owner of the property against defective work done by that contractor. A significant proportion of owner-builder work is performed by licensed trade contractors engaged by owner-builders. Accordingly, subsequent purchasers will have access to cover under each trade contractor’s insurance policy in respect of the work undertaken by those contractors.

In 1997, the Government introduced a reform to change the insurance requirements for development projects. A "developer" as defined in the Act is not the builder of the project but the proprietor who normally intends to sell the completed dwellings to individual purchasers. The Act provides that a developer must not commence the project unless insurance covering the work is in place. As it stands, a developer may not enter into a contract for sale of a dwelling in a project unless a certificate of insurance is attached. For builders of development projects, the Act provides they must not contract to do the work unless insurance covering the work is in place.

While the responsibilities of builders and developers under the Act for development work currently overlap, the practice of the approved insurers has been to issue the insurance to the builder rather than the developer. Insurers have told the Government they are reluctant to insure developers for two main reasons. Firstly, unlike builders, developers do not have an ongoing relationship with the insurer. Secondly, there is a fear that development companies will be wound up some time after completion of the project and that the insurer will not be able to call upon them to fix any problems that may occur. Thus insurers prefer to issue cover for the builder’s work. The bill removes the requirement placed on developers to arrange insurance cover and places the responsibility on the building contractor engaged to do the work.

While developers will no longer arrange insurance cover, they will continue to be obliged to provide purchasers of dwellings in the project with a certificate of the insurance. Where the developer is selling dwellings in a project off the plan before a builder is engaged, the developer will still be required to provide the purchaser with the certificate of insurance within a specified time. As mentioned previously, the Act provides that a person must not contract to do any residential building work or supply a kit home costing in excess of $5,000, unless a contract of insurance is in force. If the contractor fails to do this there are serious consequences for the contractor.

Section 94 of the Act provides that if a contractor fails to have insurance in place at the time the contract is entered into, he or she cannot recover any money for work done. The policy behind section 94 is to deter uninsured work having regard to the possible significant detriment that might be suffered by the client due to lack of insurance cover. However, the strict operation of section 94 has had unintended consequences. Cases have been brought to the attention of the Department of Fair Trading involving contractors who have failed to provide insurance at the date of contract, but have taken it out some time thereafter. Subsequently, a dispute has arisen and the client has relied on the strict terms of section 94 to deny payment to the contractor even though the work was not defective and insurance cover was in place.

While consumers must be protected against uninsured operators, the strict terms of section 94 may operate unfairly where there is an intention to insure, yet the supply of the certificate of insurance cover has not been contemporaneous with the signing of the contract. The operation of section 94 was the subject of criticism by the New South Wales Court of Appeal in the 1998 case of Casa Maria Pty Limited v Trend Properties Pty Limited. The Court expressed the view that there is a need for some attention to be given to the present form of the section if it is not to become an "instrument of oppression".

To address the existing consequences of section 94 the bill introduces amendments which provide that a licensee is not entitled to enforce the contract, or recover moneys for work done, until the licensee obtains insurance covering that work. In light of this change it would be inconsistent for the Act to continue to provide that insurance must be in place at the date of the contract. The Act will therefore be amended to provide that a person who contracts to do any residential building work or supply a kit home must not commence that work or supply the kit unless a contract of insurance is in place.

A certificate of the insurance will also have to be given to the other party to the contract before commencement of the work or supply of the kit. These requirements will be subject to a fine of up to 100 penalty units ($11,000), the same penalty which currently applies for contracting without insurance. So consumers will not be exposed to loss during the period immediately prior to the insurance being obtained, the Act will make it an offence, with a fine of up to 100 penalty units ($11,000), for a contractor to receive or demand a deposit or other payment until such time as insurance is in place.

The Act provides that the director-general may exempt from the insurance requirements: A license-holder doing work on his or her own property, that is, a "speculative builder"; a developer having work done; and an owner-builder. An exemption may be granted unconditionally or subject to conditions. An exemption may only be granted if there are exceptional circumstances or full compliance is impossible or would cause undue hardship.

In view of the change to the insurance requirements for development work previously mentioned and to cater for exceptional cases which may arise, the bill will amend the Act so regulations can be made to prescribe additional persons or classes of persons who will be entitled to apply for an exemption. The final form of the regulation will be subject to consultation, however an example that may qualify is where a church or charity organisation builds a retirement village for their own use, where the units remain the property of the church or charity and are not onsold.

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In order to bring consistency to compliance in the Department of Fair Trading’s compliance division, it is also proposed to amend the Act to provide for penalty notices to be issued in certain cases. The offences under the Act which can be the subject of a penalty notice will be prescribed in the regulations. The use of penalty notices is an important part of the overall compliance strategy for the Department of Fair Trading. Provisions allowing for penalty notices are contained in the Fair Trading Act, the Motor Dealers Act; the Trade Measurement Administration Act, the Property, Stock and Business Agents Act, the Landlord and Tenant (Rental Bonds) Act, the Residential Parks Act and the Pawnbrokers and Second-hand Dealers Act.

These Acts include regulations which allow a penalty notice to be served on the offender in respect of a prescribed offence. If the alleged offender does not wish to have the matter dealt with by a court he or she may pay the penalty to the Director-General of the Department of Fair Trading. Where the penalty is paid no further proceedings may be taken in respect of the alleged offence. The amount of the penalty is prescribed and cannot exceed the amount which can be imposed by a court.

The home building industry is an important area within Fair Trading and can involve significant loss for consumers. Serious emergency situations such as the Newcastle earthquake or the recent Sydney hailstorm can leave consumers exposed to unlicensed and uninsured operators. In such situations it is vital that the Department can respond rapidly to protect consumers and the ability to issue penalty notices will act as a deterrent to illegal conduct and allow for better use of compliance resources.

The amendments proposed to the Home Building Act reflect the Government’s commitment to better consumer protection in the home building area and improving licensing and insurance processes for builders and business at the same time. Consumers can be well pleased with the proposals outlined here today. I commend the bill to the House.

The Hon. D. J. GAY [6.42 p.m.]: The Opposition acknowledges that the Home Building Amendment Bill amends the Home Building Act 1989. It also provides that the Director-General of the Department of Fair Trading must not approve an application for the grant, renewal or restoration of a contractor licence unless the director-general is satisfied that the applicant is able to comply with requirements under the Act relating to insurance. It also provides that the director-general may suspend a contractor licence if the holder of the licence fails to comply, or becomes unable to comply, with those requirements, and to enable the holder of a licence that has been so suspended to apply to the Administrative Decisions Tribunal for a review of that decision.

The bill also makes further provision in relation to the obtaining of insurance for residential building work done under a contract or the supply of a kit home under a contract. I feel I have made a sufficient contribution and that the Leader of the Opposition is better able to continue.

The Hon. M. J. GALLACHER (Leader of the Opposition) [6.43 p.m.]: This bill amends the Home Building Act, which passed through this place in May 1998. At that time the Opposition put on record its concerns about some aspects of the bill, particularly issues relating to insurance and the impact that would have on builders. The object of this bill arose partly from questions raised by the Opposition at that time. I refer particularly to proposed new sections 92, 93 and 94.

It is a shame that, with so many worthwhile and legitimate suggestions that the Opposition makes about the Government’s legislative reform program, the Government initially discounts them out of hand and then has to return later with its tail between its legs and correct its mistakes. The Government has done that again with this bill. The bill appears before the Chamber, shortcomings are identified, the Government maligns any suggestion that it should be amended as merely playing to the hands of those to whom the bill is designed to manage, before returning it at a later date to be corrected, with the Government stating that it has all been part of the consultative program.

Time and again we hear, and we are continually confronted with, the Government claiming it is identifying the mistakes it makes in the initial legislation. There is a continuing trend towards the Government utilising the regulatory process to determine the nuts and bolts of the legislation. The Opposition is of the view that this growing trend is not in the best interests of good legislative reform.

I would like to thank the Master Builders Association [MBA] and the Housing Industry Association [HIA] for their assistance in examining this bill. I am pleased to be in a position to ensure that their views on this bill are presented. The bill proposes a new section 19 (2A), which deals with licence applications and certain documentary requirements. But there is no mention of what documentation is required and there are no guidelines currently in existence that ensure that all decisions taken by the director-general, not only with respect to this section, are indeed right.

Similarly new section 40 (2A), which eliminates the discretionary power of the director-general, and new section 83B (2A), dealing with the role of the tribunal, are not clear. These measures do not clarify which tribunal is being referred to. The bill has been prepared in a very untidy way and it is quite apparent that the level of presentation that the Opposition has come to expect from this Minister is
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a poor performance compared to Ministers who have gone before him in this portfolio.

Earlier this afternoon comments were made in the Chamber about the performance of the Attorney General when he was Minister for Fair Trading. Those comments were not made lightly. The Opposition had a fair degree of respect for his performance in that capacity and it is unfortunate that the Government has not given him the opportunity to continue in that role but has given it to the member for Ryde, who, going by this piece of legislation, is not up to the task. The Opposition hopes that he lifts his game and ensures that future legislation is presented in the proper form.

Another area of concern relates to new section 92 (2), and particularly the process by which insurance must be taken out before any work is performed. The HIA has acknowledged the difficulty this causes with respect to preliminary work such as drawing up plans and their subsequent submission to council. The Coalition is aware that insurance must be taken out before matters are submitted to council, but it believes that strict interpretation of this section could cause some difficulties in the process of business practice flexibility. The Coalition, like the HIA and the MBA, is not an apologist for sub-building work or unlicensed tradespeople, nor does it wish to see honest, hardworking small business people in the industry fall victim to unscrupulous consumers.

It is imperative that reforms designed to protect those operating within an industry do so on an equitable basis. It is the Opposition’s view that consideration could be given to enabling some preliminary work, such as the drawing up of plans and obtaining prices, which all take time for the builder when trying to prepare an offer for a customer, so that they can be adopted without reducing or affecting the integrity and essence of this bill. The HIA is still concerned about the implications and what it sees as the unfair use of new section 94 (1).

The Opposition is of the view that the Government should liaise with industry to ensure that individuals and builders who have fallen prey to the problems this current amendment hopes to address will not be left without an opportunity to have their problem heard. The industry is concerned about the time lag between the passage of the original bill and the finalisation of this bill. The predicament of victims should be given priority by the Department of Fair Trading. The Minister is endeavouring to patch up the mistakes made by the Government with the original legislation in 1988. I ask the Government to seriously consider the concerns of the Opposition with respect to this bill rather than address them again in 12 months or so once the problems raised by the Opposition sink in. I ask the Minister for Mineral Resources, and Minister for Fisheries to consider the recommendations of the Opposition and bring them to the attention of the Minister for Fair Trading before the matter is finalised. The Opposition does not oppose this bill.

The Hon. E. M. OBEID (Minister for Mineral Resources, and Minister for Fisheries) [6.50 p.m.], in reply: Whilst I do not agree with many of the comments of the Leader of the Opposition about the performance of our new Minister, nevertheless I thank him and the Hon. D. J. Gay for their contributions, and I commend the bill to the House.

Motion agreed to.

Bill read a second time and passed through remaining stages.